<PAGE> 1
VANGUARD
BOND INDEX
FUNDS
VANGUARD TOTAL BOND MARKET INDEX FUND
VANGUARD SHORT-TERM BOND INDEX FUND
VANGUARD INTERMEDIATE-TERM BOND INDEX FUND
VANGUARD LONG-TERM BOND INDEX FUND
[PHOTO]
ANNUAL
REPORT
DECEMBER 31, 1998
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto--"Leading the way"--serves as a guiding principle for
our company.
- - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington
Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was
friend and mentor to Vanguard founder John C. Bogle, and helped to shape the
standards and business principles that Mr. Bogle laid down for Vanguard at
its beginning nearly 25 years ago: a stress on balanced, diversified
investments; insistence on fair dealing and candor with clients; and a focus
on long-term investing. To our great regret, Mr. Morgan died on September 2.
- - The 70th anniversary, on December 28, of the incorporation of Vanguard
Wellington Fund. It is the nation's oldest balanced mutual fund, and one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology,
and develops new services, we treasure the traditions and values that set us
apart in a crowded, competitive industry. And we salute our shareholders,
whose support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
6
FUND PROFILES
8
PERFORMANCE SUMMARIES
13
FINANCIAL STATEMENTS
18
REPORT OF
INDEPENDENT ACCOUNTANTS
55
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Senior Chairman Chairman & CEO
Low inflation and a general decline in interest rates made 1998 a rewarding year
for bond investors. Vanguard Total Bond Market Index Fund posted a strong +8.6%
return for the year, once again exceeding the return of its average competitor
and closely tracking its index benchmark, as it has each year since 1988. The
returns of our other bond index funds were similarly impressive, ranging from
+7.6% for our Short-Term Bond Index Fund to +12.0% for the Long-Term Bond Index
Fund.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
TOTAL RETURNS
YEAR ENDED
DECEMBER 31, 1998
- ---------------------------------------------------------------
<S> <C>
TOTAL BOND MARKET INDEX FUND + 8.6%
Average Intermediate-Term
U.S. Government Fund + 7.7
Lehman Aggregate Bond Index + 8.7
- ---------------------------------------------------------------
SHORT-TERM BOND INDEX FUND + 7.6%
Average Short-Term U.S.
Government Fund + 6.3
Lehman 1-5 Year Government/
Corporate Index + 7.6
- ---------------------------------------------------------------
INTERMEDIATE-TERM BOND INDEX FUND +10.1%
Average Intermediate-Term
U.S. Government Fund + 7.7
Lehman 5-10 Year Government/
Corporate Index +10.1
- ---------------------------------------------------------------
LONG-TERM BOND INDEX FUND +12.0%
Average General U.S.
Government Fund + 8.1
Lehman Long Government/
Corporate Index +11.8
- ---------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------
Total Bond Market Index Fund + 8.7%
- ---------------------------------------------------------------
</TABLE>
The adjacent table presents the total return (capital change plus
reinvested dividends) for our funds during the past twelve months. Each is
compared with its average mutual fund peer and the unmanaged bond market index
it emulates. Each of our funds outpaced its average competitor and closely
tracked the return of its target index. Indeed, our Long-Term Bond Index Fund
surpassed its index benchmark. Because indexes are theoretical constructs
without the real-world expenses of fund operations and transaction costs, they
are tough standards for mutual funds to match, much less to outdistance.
Detailed per-share figures for each fund, including net asset values and
income dividends, along with yield, credit quality, and maturity data, are
presented in the table that follows this letter.
FINANCIAL MARKETS IN REVIEW
The U.S. economy grew at a robust pace of more than 3% during 1998 as it
shrugged off the effects of serious financial problems in Asia, Russia, and
Latin America. Troubles abroad slowed demand for American exports and boosted
demand for imported goods, increasing the U.S. trade deficit. The Federal
Reserve Board cut short-term interest rates three times between September and
November, citing unsettled financial markets and unusual economic conditions.
But the domestic economy got a powerful push from higher consumer spending,
which was encouraged by low unemployment (4.3% at year-end) and higher wages (up
about 4%). Inflation remained quiescent, with consumer prices rising 1.6% for
the year.
1
<PAGE> 4
Interest rates declined on balance during 1998 and bond prices, which
move in the opposite direction from interest rates, generally rose. Price
appreciation accounted for 2 percentage points of the +8.7% total return of the
Lehman Brothers Aggregate Bond Index. U.S. Treasury bond prices benefited from a
"flight to quality" as many investors shunned riskier securities. The yield on
the benchmark 30-year U.S. Treasury bond began the year at 5.92%, fell to a
31-year low of 4.72% on October 5, then climbed back to 5.09% by year-end--down
83 basis points (0.83 percentage point) for the twelve months. Yields on 3-month
Treasury bills declined on balance during the year by 90 basis points to 4.45%
on December 31.
While bonds generally enjoyed a strong year, the U.S. stock market
produced mixed results. Large-capitalization stocks, as measured by the Standard
& Poor's 500 Composite Stock Price Index, gained +28.6% for the year, despite a
sharp tumble in July and August. This result, however, masked weakness elsewhere
in the market. The Wilshire 4500 Equity Index, which comprises stocks not
included in the S&P 500, gained just +8.6%, while the small-cap Russell 2000
Index declined -2.5%. In the entire market, more stocks declined in price than
rose.
1998 PERFORMANCE OVERVIEW
The total return of any bond fund consists of interest income plus or minus any
change in the prices of securities held by the fund. During 1998, interest
income provided the majority of the total return for each of our bond index
funds, augmented by varying degrees of price appreciation. Each fund's current
yield at the end of 1997 and 1998 is shown in the following table, along with
the income and capital components of each fund's total returns.
As this table makes clear, the longer a bond fund's average maturity, the
more sensitive its net asset value is to changes in interest rates. During 1998,
declining interest rates enhanced total returns, especially for bonds with
longer maturities. Of course, volatility is a two-way street, and during periods
when interest rates rise, bond prices will fall, offsetting at least to some
degree the interest income from the bonds. Over longer periods, however, a bond
fund's primary source of total return is the rate of interest income--or
coupon--of its underlying bonds.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
TOTAL RETURNS
YEAR-END YEAR ENDED
YIELDS DECEMBER 31, 1998
----------------- ------------------------------
BOND INDEX FUND 1997 1998 INCOME CAPITAL TOTAL
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Bond Market 6.22% 5.63% +6.4% +2.2% + 8.6%
Short-Term 5.77 5.01 +5.9 +1.7 + 7.6
Intermediate-Term 6.09 5.31 +6.6 +3.5 +10.1
Long-Term 6.21 5.65 +6.5 +5.5 +12.0
- ---------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------
Total Bond Market 6.32% 5.73% +6.5% +2.2% + 8.7%
- ---------------------------------------------------------------------------------
</TABLE>
Our total returns were well in excess of those earned by competing bond
funds with similar average maturities and credit quality. The margins of
superiority were 0.9 percentage point for our Total Bond Market Index Fund; 1.3
percentage points for our Short-Term Bond Index Fund; 2.4 percentage points for
our Intermediate-Term Bond Index Fund; and 3.9 percentage points for our
Long-Term Bond Index Fund. This performance is due partly to our low operating
costs and partly to the fact that professional managers not only have difficulty
in forecasting interest rates, but incur significant research and transaction
costs in their efforts to outshine the bond market itself.
2
<PAGE> 5
We note that our peer fund groups--all in the government bond fund
category--are not a perfect match for our funds, which hold more corporate bonds
than many competitors. For example, the Total Bond Market Index Fund invests
about 30% of its assets in the debt securities of industrial, financial, and
utility companies. This was a disadvantage for us in 1998, when corporate bonds,
especially in the long- and intermediate-term maturity ranges, fared less well
than comparable U.S. Treasury and government agency securities. Over time,
however, higher-yielding corporate holdings should enable our funds to provide
higher returns than funds that invest exclusively in government bonds.
U.S. Treasury and federal agency securities make up the majority of the
holdings in our Short-Term, Intermediate-Term, and Long-Term Bond Index Funds.
The Total Bond Market Index Fund, while holding about 28% of assets in
Treasuries and other agency securities, also invests about 33% of assets in
GNMAs and other mortgage-backed securities. Mortgage securities are backed by
federal guarantees against the loss of principal or interest payments, but they
are vulnerable to "prepayment risk"--the possibility that homeowners will pay
off loans early to refinance at lower rates when interest rates decline. When
prepayments rise, as they did in response to lower interest rates in 1998,
investors receive a smaller-than-expected overall return. To compensate
investors for prepayment risk, mortgage-backed securities carry higher yields
than comparable Treasury securities. During 1998, however, their higher yields
could not lift mortgage-backed securities to higher returns than those earned by
comparable Treasury securities. The Lehman GNMA Index earned a +6.9% return for
the year, compared with the +11.6% total return for the Lehman 5-10 Year U.S.
Treasury Index.
The Fund Profiles starting on page 8 list each fund's average duration,
an indication of how much a bond fund's share price will move in response to
changing interest rates. For example, if a bond fund's average duration were 7
years, its share price would fall about 7% for each percentage-point rise in
market interest rates. Conversely, if market rates declined by a percentage
point, the share price of a bond fund with an average duration of 7 years would
rise by about 7%.
LONG-TERM PERFORMANCE OVERVIEW
Vanguard Total Bond Market Index Fund was established in December 1986 as the
nation's first bond index fund for individual investors. Since its creation, the
fund has achieved a sizable return advantage of 1.2 percentage points annually
over funds holding securities of comparable maturity ranges and credit quality.
This margin has amounted over the past decade to an extra return of $2,481 on a
$10,000 investment in the fund versus an identical investment in its average
competitor, assuming reinvestment of income dividends and any capital gains
distributions. This extra return is nearly one-fourth of the initial investment.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED
DECEMBER 31, 1998
----------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- -----------------------------------------------------------------------------
<S> <C> <C>
TOTAL BOND MARKET INDEX FUND +9.0% $23,679
Average Intermediate-Term
U.S. Government Fund +7.8 21,198
Lehman Aggregate Bond Index +9.3 24,237
- -----------------------------------------------------------------------------
</TABLE>
Our low costs are a key factor in this advantage. The annual expense
ratio of the Total Bond Market Index Fund is 0.20%, or $2 per $1,000 in assets,
about one-fifth the 1.06% expense ratio ($10.60 per $1,000 in assets) of its
average peer. Because operating
3
<PAGE> 6
costs directly reduce the income that bond funds pass along to their
shareholders, our expense advantage of more than 0.8 percentage point gives us a
big head start every year in our effort to outperform peer funds.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
TOTAL RETURNS FROM INCEPTION*
THROUGH DECEMBER 31, 1998
-----------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- ------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM BOND
INDEX FUND + 6.5% $13,545
Average Short-Term U.S.
Government Fund + 5.4 12,909
Lehman 1-5 Year Government/
Corporate Index + 6.6 13,594
- ------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND
INDEX FUND + 8.0% $14,525
Average Intermediate-Term U.S.
Government Fund + 6.2 13,388
Lehman 5-10 Year Government/
Corporate Index + 8.1 14,589
- ------------------------------------------------------------------------------
LONG-TERM BOND
INDEX FUND + 9.9% $15,809
Average General U.S.
Government Fund + 6.3 13,421
Lehman Long Government/
Corporate Index +10.0 15,882
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FINAL VALUE OF
A $10,000,000
INSTITUTIONAL SHARES INITIAL INVESTMEN
- ------------------------------------------------------------------------------
<S> <C> <C>
TOTAL BOND MARKET
INDEX FUND** + 8.1% $12,905,361
Average Intermediate-Term U.S.
Government Fund + 6.8 12,420,421
Lehman Aggregate Bond Index + 8.0 12,889,792
- ------------------------------------------------------------------------------
</TABLE>
*March 1, 1994, for the Short-Term, Intermediate-Term, and Long-Term Bond
Index Funds; September 18, 1995, for the Institutional Shares of the Total
Bond Market Index Fund.
**Minimum initial investment is $10 million.
As low as they are, our costs make it difficult to match the return of
the cost-free Lehman Aggregate Bond Index. The small gap--much smaller in recent
years than in the early years--between our fund's return and that of the index
stems almost entirely from the operating and transaction costs that we incur.
Our other bond index funds are less than five years old, but already have
established a record of soundly outperforming their peers and closely tracking
their target indexes. The adjacent table shows the average annual return for
each fund from its inception through year-end 1998, along with the growth of a
hypothetical $10,000 investment in the fund. The same data are presented for
each fund's average competitor and target index.
Based on initial $10,000 investments, the additional returns earned for
shareholders by our funds have ranged from $636 for our Short-Term Bond Index
Fund to $2,388 for the Long-Term Bond Index Fund. The Short-Term,
Intermediate-Term, and Long-Term Bond Index Funds all operate at the same 0.20%
annual expense ratio as the Total Bond Market Index Fund. (The expense ratio of
the Institutional Shares of the Total Bond Market Index Fund is 0.10%, or just
$1 a year per $1,000 in assets.)
IN SUMMARY
Events during 1998 provided an ample demonstration of the important role bonds
can play in a balanced investment portfolio. Bond funds can help to cushion the
anxiety arising from extreme fluctuations in the stock market. In addition, bond
funds can be a reliable source of current income, though share prices are still
subject to volatility due to changes in market conditions.
4
<PAGE> 7
We have always believed that investors are well served by selecting a mix
of stock funds, bond funds, and money market funds appropriate to their
investment time horizon, goals, and risk tolerance, and then sticking with their
plan. The Vanguard Bond Index Funds provide a low-cost, well-diversified means
of implementing the fixed-income portion of such a plan.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
January 21, 1999
Note: You'll observe that we have made minor changes in the name of each of the
Vanguard Bond Index Funds. We shortened each name and replaced "portfolio" with
"fund" as part of a broader effort to clarify the names in our fund lineup.
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
TOTAL PER SHARE 12 MONTHS SEC
NET ASSETS ---------------------- --------------------- CURRENT
(MILLIONS) AVERAGE AVERAGE DEC. 31, DEC. 31, INCOME TOTAL ANNUALIZED
BOND INDEX FUND DEC. 31, 1998 MATURITY QUALITY 1997 1998 DIVIDENDS RETURN YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bond Market $7,765 8.6 years Aa1 $10.09 $10.27 $0.624 + 8.6% 5.63%
Short-Term 709 2.7 years Aa1 10.00 10.10 0.574 + 7.6 5.01
Intermediate-Term 1,102 7.5 years Aa1 10.20 10.48 0.647 +10.1 5.31
Long-Term 210 21.8 years Aa1 10.78 11.32 0.666 +12.0 5.65
- ---------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
Total Bond Market $2,493 8.6 years Aa1 $10.09 $10.27 $0.635 + 8.7% 5.73%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
THE MARKETS IN PERSPECTIVE
YEAR ENDED DECEMBER 31, 1998
[PHOTO]
Financial markets continued to produce solid overall gains during 1998. After
overcoming a sharp, six-week setback in July and August, the S&P 500 Index
gained 28.6% for the year, marking the first time the index had produced returns
of 20% or more in four consecutive years. Bond prices rose as interest rates
generally declined over the year. Returns from overseas stock markets varied
widely, with big gains in Europe, small gains in the Pacific, and losses in most
emerging markets.
U.S. STOCK MARKETS
Large-capitalization stocks--especially those of large growth companies--were
the best performers during 1998. The 50 largest stocks within the S&P 500 Index
earned more than 40%, while the return of the other 450 stocks was less than
17%. The stock market as a whole, as measured by the Wilshire 5000 Equity Index,
earned 23.4%. Small-cap stocks, represented by the Russell 2000 Index, declined
2.5% for the year.
The huge gap between returns of large and small stocks was not the only
oddity during the year. Among large stocks there also was a large disparity in
performance between growth and value stocks. Within the S&P 500 Index, growth
stocks rose 42.2%, while value stocks were up 14.7%. The gap of 27.5 percentage
points is the largest in the 23 years that the growth and value components have
been tracked.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED DECEMBER 31, 1998
---------------------------------------
1 YEAR 3 YEARS 5 YEARS
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 28.6% 28.2% 24.1%
Russell 2000 Index -2.5 11.6 11.9
MSCI EAFE Index 20.3 9.3 9.5
- ---------------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 8.7% 7.3% 7.3%
Lehman 10 Year Municipal Bond Index 6.8 6.8 6.4
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.1 5.2 5.1
- ---------------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.6% 2.2% 2.4%
- ---------------------------------------------------------------------------------------
</TABLE>
Stocks rose strongly during the first half of the year. But after hitting
a then-record high on July 17, the S&P 500 Index fell by 19.2% during the
following six weeks. Declines were steeper for most smaller stocks. The Russell
2000 Index fell nearly 40% from its peak in April before climbing back during
the fourth quarter.
The summer slump in stock prices reflected several factors that raised
anxiety among investors and prompted a reconsideration of risk that extended
past stocks to bonds. Among these factors were deteriorating corporate earnings;
Russia's default on its debts; sharp swings in currency exchange rates; and
lingering economic weakness in Asia.
Although these sources of uncertainty remained as the year went on, many
investors reacted not by abandoning stocks, but by selecting large, well-known
stocks they perceived as reliable vehicles for long-term growth. The strong
rebound in prices during the fourth quarter was due in large part to the calming
influence on jittery markets of the Federal Reserve Board's decision to cut
short-term interest rates by 0.75 percentage point.
6
<PAGE> 9
Technology stocks led the market's advance during 1998, rising 83%.
Investors were attracted by rapid revenue growth and a belief that consumers and
businesses will keep spending freely on computers, software, and computer
services. Speculation also played a role in the surge. Burgeoning activity on
the Internet sent many stocks, even those with no hint of profitability,
skyrocketing. The bulge in Internet stock prices prompted comparisons with such
historic asset "bubbles" as Japan's stock market in the late 1980s and the
tulip-bulb mania in Holland in the 1630s.
Health care and utilities, especially telecommunications providers, also
soared, achieving returns of more than 43%. Both sectors benefited from rising
demand for their products and a perception that they are somewhat protected from
foreign economic troubles and foreign competition. Consumer-related stocks such
as retailers also did well, reflecting strength in consumer spending. Americans
spent almost every after-tax dollar they earned during 1998. Jobs were abundant;
unemployment fell to 4.3% by year-end.
The worst-performing groups were two directly harmed by falling commodity
prices: oil drilling and services firms in the "other energy" category (-36%)
and materials & processing firms (-1%), such as paper, steel, and chemical
makers. Producer-durables companies, such as machinery and aircraft makers, eked
out a 2% return as companies saw falling sales abroad and rising competition at
home from foreign firms.
U.S. BOND MARKETS
The fall in interest rates during 1998 was steepest for U.S. Treasury
securities, which benefited from heightened aversion to risk among investors and
from a slight decrease in supply, thanks to a $70 billion federal budget
surplus. The low inflation rate--consumer prices were up just 1.6%--gave the
Federal Reserve the flexibility to cut short-term rates even though economic
growth was strong.
Yields on long-term Treasury issues fell by roughly 1 percentage point,
and the 30-year Treasury bond's yield was 5.09% on December 31. Lower rates mean
higher bond prices, and the Lehman Brothers Long U.S. Treasury Index earned a
total return of 13.5%, an astounding margin of nearly 12 percentage points over
the inflation rate.
Bonds lacking the unquestioned credit quality of Treasuries did not fare
as well, reflecting a repricing of risk and a "flight to quality" by investors
who began to feel they had been underestimating risk. One result was price
declines that nearly offset the interest earned on high-yield "junk" bonds.
However, high-quality corporate bonds and mortgage-backed securities generally
held up well. The Lehman Aggregate Bond Index, which encompasses Treasury,
mortgage, and high-quality corporate securities and has an intermediate-term
average maturity, earned a solid 8.7%.
Yields on long-term municipal bonds declined only slightly during the
year, and by December 31 were only a tad lower than yields on long-term
Treasuries. This was striking because the interest on municipals is exempt from
federal income tax.
INTERNATIONAL STOCK MARKETS
Europe's stock markets beat even the S&P 500 Index's gaudy return, gaining 28.7%
in U.S.-dollar terms, with about 5% of the gain due to a fall in the dollar
versus most European currencies. Pacific-region stocks rose 2.6%, although it
took a fall in the dollar's value versus the Japanese yen to overcome losses in
local-currency terms. Overall, developed international markets, as measured by
the MSCI EAFE Index, earned 20.3%.
Investors' confidence in emerging markets continued to evaporate in 1998,
and stocks in these markets fell about 25% as a group. The few bright spots
included South Korea (+141%) and the Philippines (+13%), which had suffered big
declines in 1997.
7
<PAGE> 10
FUND PROFILE
TOTAL BOND MARKET INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of December
31, 1998, compared where appropriate to its unmanaged target index. Key elements
of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------------
TOTAL BOND LEHMAN
MARKET INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
Number of Issues 737 7,257
Yield 5.6% 6.5%
Yield--Institutional Shares 5.7% 6.5%
Yield to Maturity 5.5% 5.7%
Average Coupon 7.3% 6.9%
Average Maturity 8.6 years 8.6 years
Average Quality Aa1 Aaa
Average Duration 4.4 years 4.4 years
Expense Ratio 0.20% --
Expense Ratio--
Institutional Shares 0.10% --
Cash Reserves 1.1% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------------
TOTAL BOND LEHMAN
MARKET INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
R-Squared 0.99 1.00
Beta 0.99 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
Treasury/Agency 27.9%
Aaa 39.5
Aa 8.1
A 14.4
Baa 10.1
Ba 0.0
B 0.0
Not Rated 0.0
- ----------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
Under 1 Year 2.8%
1-5 Years 45.5
5-10 Years 30.9
10-20 Years 4.3
20-30 Years 15.6
Over 30 Years 0.9
- ----------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- ----------------------------------------------------------
<S> <C>
Asset-Backed 5.6%
Finance 17.0
Foreign 3.1
Industrial 9.0
Mortgage 33.2
Treasury/Agency 27.9
Utilities 4.2
- ----------------------------------------------------------
Total 100.0%
</TABLE>
8
<PAGE> 11
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a fund's holdings by type of issuer or
type of instrument.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(Treasury/agency, investment-grade corporate, or below investment-grade).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days and is annualized, or projected forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
9
<PAGE> 12
FUND PROFILE
SHORT-TERM BOND INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of December
31, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------------
SHORT-TERM LEHMAN
BOND INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
Number of Issues 213 7,257
Yield 5.0% 6.5%
Yield to Maturity 5.1% 5.7%
Average Coupon 7.3% 6.9%
Average Maturity 2.7 years 8.6 years
Average Quality Aa1 Aaa
Average Duration 2.4 years 4.4 years
Expense Ratio 0.20% --
Cash Reserves 1.8% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------------
SHORT-TERM LEHMAN
BOND INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
R-Squared 0.89 1.00
Beta 0.52 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Treasury/Agency 57.1%
Aaa 7.9
Aa 10.4
A 16.2
Baa 8.4
Ba 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Under 1 Year 2.8%
1-3 Years 50.0
3-5 Years 47.2
Over 5 Years 0.0
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Asset-Backed 5.4%
Finance 20.0
Foreign 3.2
Industrial 9.0
Mortgage 0.0
Treasury/Agency 57.1
Utilities 5.3
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
10
<PAGE> 13
FUND PROFILE
INTERMEDIATE-TERM BOND INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of December
31, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
BOND INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
Number of Issues 201 7,257
Yield 5.3% 6.5%
Yield to Maturity 5.4% 5.7%
Average Coupon 8.2% 6.9%
Average Maturity 7.5 years 8.6 years
Average Quality Aa1 Aaa
Average Duration 5.4 years 4.4 years
Expense Ratio 0.20% --
Cash Reserves 1.0% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------------
INTERMEDIATE-TERM LEHMAN
BOND INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
R-Squared 0.98 1.00
Beta 1.27 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Treasury/Agency 54.5%
Aaa 2.6
Aa 8.0
A 18.5
Baa 16.4
Ba 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Under 1 Year 0.6%
1-5 Years 7.3
5-10 Years 87.4
10-20 Years 4.4
20-30 Years 0.2
Over 30 Years 0.1
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Asset-Backed 2.3%
Finance 14.4
Foreign 6.6
Industrial 15.4
Mortgage 0.0
Treasury/Agency 54.5
Utilities 6.8
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
11
<PAGE> 14
FUND PROFILE
LONG-TERM BOND INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of December
31, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------------------
LONG-TERM LEHMAN
BOND INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
Number of Issues 165 7,257
Yield 5.7% 6.5%
Yield to Maturity 5.7% 5.7%
Average Coupon 8.1% 6.9%
Average Maturity 21.8 years 8.6 years
Average Quality Aa1 Aaa
Average Duration 10.4 years 4.4 years
Expense Ratio 0.20% --
Cash Reserves 1.7% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------------
LONG-TERM LEHMAN
BOND INDEX INDEX*
- ----------------------------------------------------------------------
<S> <C> <C>
R-Squared 0.95 1.00
Beta 2.08 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Treasury/Agency 63.2%
Aaa 2.5
Aa 6.1
A 15.0
Baa 13.2
Ba 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Under 1 Year 0.6%
1-5 Years 2.0
5-10 Years 8.2
10-20 Years 11.5
20-30 Years 74.4
Over 30 Years 3.3
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Asset-Backed 0.8%
Finance 7.9
Foreign 4.9
Industrial 15.2
Mortgage 0.0
Treasury/Agency 63.2
Utilities 8.0
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
12
<PAGE> 15
PERFORMANCE SUMMARY
TOTAL BOND MARKET INDEX FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 11, 1986-DECEMBER 31, 1998
- -------------------------------------------------------------------
TOTAL BOND MARKET INDEX FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
1986 -0.6% 0.4% -0.2% -0.2%
1987 -7.4 8.5 1.1 2.8
1988 -1.6 9.0 7.4 7.9
1989 4.3 9.3 13.6 14.5
1990 -0.3 8.9 8.6 9.0
1991 6.4 8.8 15.2 16.0
1992 -0.2 7.3 7.1 7.4
1993 3.0 6.7 9.7 9.8
1994 -8.8 6.1 -2.7 -2.9
1995 10.6 7.6 18.2 18.5
1996 -3.0 6.6 3.6 3.6
1997 2.5 6.9 9.4 9.7
1998 2.2 6.4 8.6 8.7
- ------------------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
See Financial Highlights table on page 49 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: DECEMBER 31, 1988-DECEMBER 31, 1998
- ------------------------------------------------------------------
<S> <C> <C> <C>
1988 12 10000 10000 10000
1989 03 10087 10101 10114
1989 06 10853 10715 10920
1989 09 10960 10793 11043
1989 12 11358 11174 11453
1990 03 11235 11133 11362
1990 06 11634 11438 11776
1990 09 11721 11567 11875
1990 12 12336 12125 12479
1991 03 12657 12344 12828
1991 06 12860 12518 13036
1991 09 13562 13147 13774
1991 12 14213 13870 14476
1992 03 14031 13578 14291
1992 06 14578 14119 14866
1992 09 15191 14718 15502
1992 12 15223 14712 15547
1993 03 15856 15213 16190
1993 06 16283 15547 16617
1993 09 16724 15897 17049
1993 12 16692 15927 17063
1994 03 16239 15468 16574
1994 06 16074 15256 16401
1994 09 16155 15301 16500
1994 12 16243 15334 16565
1995 03 17024 15969 17401
1995 06 18045 16778 18460
1995 09 18382 17036 18820
1995 12 19191 17739 19624
1996 03 18824 17378 19277
1996 06 18935 17409 19386
1996 09 19272 17678 19742
1996 12 19871 18214 20337
1997 03 19747 18050 20223
1997 06 20449 18607 20966
1997 09 21143 19122 21659
1997 12 21741 19686 22299
1998 03 22078 19899 22648
1998 06 22596 20291 23176
1998 09 23529 21136 24152
1998 12 23609 21198 24237
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
-------------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Bond Market Index Fund* 8.58% 7.21% 9.00% $23,679
Average Intermediate-Term U.S. Government Fund 7.68 5.88 7.80 21,198
Lehman Aggregate Bond Index 8.69 7.27 9.26 24,237
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Bond Market Index Fund* 12/11/1986 8.58% 7.21% 1.55% 7.45% 9.00%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
13
<PAGE> 16
PERFORMANCE SUMMARY
TOTAL BOND MARKET INDEX FUND INSTITUTIONAL SHARES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: SEPTEMBER 18, 1995-DECEMBER 31, 1998
- ----------------------------------------------------------------
TOTAL BOND MARKET INDEX FUND
INSTITUTIONAL SHARES LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 2.7% 1.8% 4.5% 4.4%
1996 -3.0 6.7 3.7 3.6
1997 2.5 7.1 9.6 9.7
1998 2.2 6.5 8.7 8.7
- ----------------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
See Financial Highlights table on page 50 for dividend and capital gains
information since the fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: SEPTEMBER 18, 1995-DECEMBER 31, 1998
- -------------------------------------------------------------------------
<S> <C> <C> <C>
9/18/95 10000000 10000000 10000000
1995 09 10009145 10009145 10009145
1995 12 10452849 10383487 10435534
1996 03 10256352 10205324 10250365
1996 06 10320662 10238831 10310151
1996 09 10507702 10386490 10499593
1996 12 10837942 10672248 10815527
1997 03 10773716 10616721 10755184
1997 06 11160477 10943263 11150428
1997 09 11542845 11235066 11519103
1997 12 11873019 11534566 11859226
1998 03 12061236 11703873 12044730
1998 06 12348362 11933628 12325683
1998 09 12861741 12418118 12844952
1998 12 12905361 12420421 12889792
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998 FINAL VALUE OF
-------------------------------- A $10,000,000
1 YEAR SINCE INCEPTION INVESTMENT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Bond Market Index Fund Institutional Shares 8.69% 8.07% $12,905,361
Average Intermediate-Term U.S. Government Fund 7.68 6.82 12,420,421
Lehman Aggregate Bond Index 8.69 8.03 12,889,792
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Bond Market Index Fund Institutional Shares 9/18/1995 8.69% 1.33% 6.74% 8.07%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
PERFORMANCE SUMMARY
SHORT-TERM BOND INDEX FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MARCH 1, 1994-DECEMBER 31, 1998
- -----------------------------------------------------------------
SHORT-TERM BOND INDEX FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -5.0% 4.6% -0.4% -0.2%
1995 6.0 6.9 12.9 12.9
1996 -1.5 6.0 4.5 4.7
1997 0.8 6.2 7.0 7.1
1998 1.7 5.9 7.6 7.6
- -----------------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Government/Corporate Index.
See Financial Highlights table on page 50 for dividend and capital gains
information since the fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MARCH 1, 1994-DECEMBER 31, 1998
- ----------------------------------------------------------------
<S> <C> <C> <C>
3/1/94 10000 10000 10000
1994 03 9933 9933 9935
1994 06 9904 9846 9905
1994 09 9985 9916 9995
1994 12 9962 9887 9979
1995 03 10356 10221 10365
1995 06 10761 10564 10780
1995 09 10932 10720 10945
1995 12 11244 11000 11264
1996 03 11230 10987 11254
1996 06 11328 11040 11352
1996 09 11510 11210 11549
1996 12 11754 11423 11790
1997 03 11797 11487 11829
1997 06 12086 11726 12127
1997 09 12356 11957 12405
1997 12 12579 12148 12630
1998 03 12768 12329 12820
1998 06 12979 12494 13035
1998 09 13456 12869 13523
1998 12 13537 12909 13594
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
---------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Bond Index Fund* 7.63% 6.48% $13,545
Average Short-Term U.S. Government Fund 6.26 5.42 12,909
Lehman 1-5 Year Government/Corporate Index 7.63 6.56 13,594
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Bond Index Fund* 3/1/1994 7.63% 0.35% 6.13% 6.48%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
15
<PAGE> 18
PERFORMANCE SUMMARY
INTERMEDIATE-TERM BOND INDEX FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MARCH 1, 1994-DECEMBER 31, 1998
- -------------------------------------------------------------
INTERMEDIATE-TERM BOND INDEX FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -8.2% 5.3% -2.9% -2.9%
1995 13.3 7.8 21.1 21.4
1996 -3.9 6.5 2.6 2.7
1997 2.4 7.0 9.4 9.4
1998 3.5 6.6 10.1 10.1
- -------------------------------------------------------------
</TABLE>
*Lehman 5-10 Year Government/Corporate Index.
See Financial Highlights table on page 51 for dividend and capital gains
information since the fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MARCH 1, 1994-DECEMBER 31, 1998
- ----------------------------------------------------------------
<S> <C> <C> <C>
3/1/94 10000 10000 10000
1994 03 9790 9790 9771
1994 06 9662 9665 9648
1994 09 9703 9701 9704
1994 12 9711 9685 9707
1995 03 10239 10107 10256
1995 06 10993 10625 11022
1995 09 11195 10799 11239
1995 12 11754 11204 11787
1996 03 11457 10998 11494
1996 06 11468 11024 11509
1996 09 11674 11206 11727
1996 12 12051 11504 12104
1997 03 11921 11424 11970
1997 06 12373 11783 12437
1997 09 12819 12122 12886
1997 12 13183 12433 13246
1998 03 13402 12594 13465
1998 06 13718 12849 13780
1998 09 14556 13398 14622
1998 12 14513 13388 14589
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
--------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate-Term Bond Index Fund* 10.09% 8.02% $14,525
Average Intermediate-Term U.S. Government Fund 7.68 6.22 13,388
Lehman 5-10 Year Government/Corporate Index 10.14 8.12 14,589
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate-Term Bond Index Fund* 3/1/1994 10.09% 1.18% 6.84% 8.02%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
16
<PAGE> 19
PERFORMANCE SUMMARY
LONG-TERM BOND INDEX FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MARCH 1, 1994-DECEMBER 31, 1998
- ---------------------------------------------------------------
LONG-TERM BOND INDEX FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -10.4% 5.9% -4.5% -4.6%
1995 21.0 8.7 29.7 30.0
1996 -6.8 6.5 -0.3 0.1
1997 6.9 7.4 14.3 14.5
1998 5.5 6.5 12.0 11.8
- ---------------------------------------------------------------
</TABLE>
*Lehman Long Government/Corporate Index.
See Financial Highlights table on page 51 for dividend and capital gains
information since the fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MARCH 1, 1994-DECEMBER 31, 1998
- -----------------------------------------------------------------
<S> <C> <C> <C>
3/1/94 10000 10000 10000
1994 03 9706 9706 9683
1994 06 9437 9532 9411
1994 09 9388 9535 9377
1994 12 9543 9560 9535
1995 03 10155 9992 10164
1995 06 11196 10569 11225
1995 09 11477 10755 11514
1995 12 12373 11217 12391
1996 03 11608 10920 11641
1996 06 11595 10937 11649
1996 09 11784 11104 11848
1996 12 12334 11410 12408
1997 03 11984 11300 12061
1997 06 12620 11704 12720
1997 09 13331 12071 13427
1997 12 14090 12419 14210
1998 03 14277 12595 14415
1998 06 14912 12894 15025
1998 09 15818 13476 15917
1998 12 15774 13421 15882
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
---------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-Term Bond Index Fund* 11.98% 9.93% $15,809
Average General U.S. Government Fund 8.07 6.27 13,421
Lehman Long Government/Corporate Index 11.77 10.04 15,882
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-Term Bond Index Fund* 3/1/1994 11.98% 2.75% 7.18% 9.93%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
17
<PAGE> 20
FINANCIAL STATEMENTS
December 31, 1998
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by bond type (U.S. government and agency issues,
corporate bonds, foreign bonds, etc.); corporate bonds are further classified by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets of each fund, you will find a
table displaying the composition of the fund's net assets. Undistributed Net
Investment Income is usually zero because the fund distributes its net income to
shareholders as a dividend each day. Any realized gains must be distributed
annually, so the bulk of net assets consists of Paid in Capital (money invested
by shareholders). The balance shown for Accumulated Net Realized Gains usually
approximates the amount available to distribute to shareholders as capital gains
as of the statement date, but may differ because certain investments or
transactions may be treated differently for financial statement and tax
purposes. Any Accumulated Net Realized Losses, and any cumulative excess of
distributions over net realized gains, will appear as negative balances.
Unrealized Appreciation (Depreciation) is the difference between the value of
the fund's investments and their cost, and reflects the gains (losses) that
would be realized if the fund were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S GOVERNMENT AND AGENCY OBLIGATIONS (60.3%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (21.5%)
U.S. Treasury Bond 5.75% 11/15/2000 $ 250 $ 255
U.S. Treasury Bond 7.25% 5/15/2016 680 824
U.S. Treasury Bond 7.50% 11/15/2016 3,235 4,018
U.S. Treasury Bond 7.625% 2/15/2007-11/15/2022 720 789
U.S. Treasury Bond 7.875% 11/15/2007-2/15/2021 21,920 28,815
U.S. Treasury Bond 8.00% 11/15/2021 94,075 125,858
U.S. Treasury Bond 8.125% 8/15/2019-8/15/2021 610,095 819,906
U.S. Treasury Bond 8.50% 2/15/2020 38,670 53,624
U.S. Treasury Bond 8.75% 5/15/2017-8/15/2020 131,425 184,571
U.S. Treasury Bond 8.875% 8/15/2017-2/15/2019 39,360 55,676
U.S. Treasury Bond 9.125% 5/15/2009-5/15/2018 16,340 23,498
U.S. Treasury Bond 9.25% 2/15/2016 835 1,198
U.S. Treasury Bond 9.375% 2/15/2006 110 140
U.S. Treasury Bond 9.875% 11/15/2015 4,390 6,602
U.S. Treasury Bond 10.00% 5/15/2010 29,275 37,321
U.S. Treasury Bond 10.375% 11/15/2009-11/15/2012 404,120 528,810
U.S. Treasury Bond 10.75% 2/15/2003-5/15/2003 335 411
U.S. Treasury Bond 11.125% 8/15/2003 1,135 1,432
U.S. Treasury Bond 11.625% 11/15/2002-11/15/2004 106,200 131,770
U.S. Treasury Bond 11.75% 2/15/2010-11/15/2014 1,085 1,650
U.S. Treasury Bond 11.875% 11/15/2003 12,625 16,478
U.S. Treasury Bond 12.00% 8/15/2013 350 534
U.S. Treasury Bond 12.375% 5/15/2004 100 136
U.S. Treasury Bond 12.75% 11/15/2010 25,480 36,996
U.S. Treasury Bond 13.25% 5/15/2014 1,500 2,484
U.S. Treasury Bond 13.375% 8/15/2001 2,600 3,154
U.S. Treasury Bond 14.00% 11/15/2011 3,420 5,417
U.S. Treasury Note 5.75% 8/15/2003 850 888
U.S. Treasury Note 5.875% 2/15/2004 830 876
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Note 6.25% 5/31/2000-2/15/2003 $ 24,170 $ 24,979
U.S. Treasury Note 6.375% 1/15/1999-8/15/2002 29,165 29,858
U.S. Treasury Note 6.50% 4/30/1999-10/15/2006 1,265 1,331
U.S. Treasury Note 6.75% 6/30/1999 400 404
U.S. Treasury Note 6.875% 8/31/1999 270 274
U.S. Treasury Note 7.50% 11/15/2001-5/15/2002 66,600 72,381
U.S. Treasury Note 7.75% 2/15/2001 100 106
U.S. Treasury Strip 0.00% 8/15/2001 1,000 888
-----------
2,204,352
-----------
AGENCY BONDS & NOTES (6.1%)
Federal Farm Credit Bank 4.80% 11/6/2003 34,120 33,660
Federal Home Loan Bank 5.575% 9/2/2003 57,500 58,552
Federal Home Loan Bank 5.675% 8/18/2003 51,450 52,595
Federal Home Loan Bank 5.80% 9/2/2008 74,700 77,024
Federal Home Loan Bank 5.865% 9/2/2008 55,420 57,412
Federal Home Loan Bank 5.88% 11/25/2008 15,300 15,315
Federal Home Loan Bank 5.90% 6/9/2000 1,000 1,014
Federal Home Loan Bank 7.78% 10/19/2001 500 537
Federal Home Loan Bank 8.60% 1/25/2000 110 114
Federal Home Loan Mortgage Corp. 5.63% 1/10/2003 625 636
Federal Home Loan Mortgage Corp. 6.155% 9/15/2000 1,000 1,020
Federal Home Loan Mortgage Corp. 6.785% 3/1/2006 9,525 9,548
Federal Home Loan Mortgage Corp. 7.09% 6/1/2005 4,400 4,504
Federal National Mortgage Assn. 5.25% 1/15/2003 750 755
Federal National Mortgage Assn. 5.64% 12/10/2008 25,000 24,749
Federal National Mortgage Assn. 5.75% 6/15/2005-2/15/2008 3,520 3,621
Federal National Mortgage Assn. 5.80% 12/10/2003 2,300 2,363
Federal National Mortgage Assn. 5.89% 11/6/2002 20,240 20,849
Federal National Mortgage Assn. 5.90% 7/6/2000-7/9/2003 44,345 44,837
Federal National Mortgage Assn. 5.91% 8/25/2003 18,450 18,610
Federal National Mortgage Assn. 5.96% 4/23/2003 7,900 8,003
Federal National Mortgage Assn. 5.97% 7/3/2003 26,390 26,656
Federal National Mortgage Assn. 6.16% 3/29/2001 1,300 1,334
Federal National Mortgage Assn. 6.35% 8/10/1999 100 101
Federal National Mortgage Assn. 6.36% 7/19/2004 400 422
Federal National Mortgage Assn. 6.48% 6/28/2004 1,830 1,938
Federal National Mortgage Assn. 6.56% 4/23/2008 55,000 56,146
Federal National Mortgage Assn. 6.57% 8/22/2007 36,250 39,294
Federal National Mortgage Assn. 6.58% 8/20/2007 36,900 40,023
Federal National Mortgage Assn. 6.59% 5/16/2002 1,500 1,572
Federal National Mortgage Assn. 7.40% 7/1/2004 1,400 1,544
Federal National Mortgage Assn. 7.50% 2/11/2002 2,500 2,676
Federal National Mortgage Assn. 7.55% 4/22/2002-6/10/2004 11,900 12,214
Federal National Mortgage Assn. 7.875% 2/24/2005 2,950 3,353
Federal National Mortgage Assn. 8.25% 12/18/2000 100 106
Federal National Mortgage Assn. 8.35% 11/10/1999 270 278
Federal National Mortgage Assn. 8.45% 7/12/1999 110 112
Federal National Mortgage Assn. 8.70% 6/10/1999 110 112
Federal National Mortgage Assn. 9.55% 3/10/1999 225 227
Government Trust Certificate 9.625% 5/15/2002 283 299
Private Export Funding Corp. 8.40% 7/31/2001 225 243
Resolution Funding Corp. 8.125% 10/15/2019 550 716
Resolution Funding Corp. 8.625% 1/15/2030 110 159
Resolution Funding Corp. 8.875% 7/15/2020 280 392
Small Business Administration Variable Rate
Interest Only Custodial Receipts 2.719% 6/25/2000 12,684 507
Tennessee Valley Authority 8.375% 10/1/1999 610 626
-----------
626,768
-----------
MORTGAGE-BACKED SECURITIES (32.7%)
Federal Home Loan Mortgage Corp. 5.50% 6/1/1999-1/1/2025 (1) 21,514 21,269
Federal Home Loan Mortgage Corp. 6.00% 4/1/1999-12/1/2028 (1) 235,309 234,590
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp. 6.50% 3/1/2000-12/1/2028 (1) $549,189 $ 554,354
Federal Home Loan Mortgage Corp. 7.00% 7/1/1999-12/1/2028 (1) 477,968 487,724
Federal Home Loan Mortgage Corp. 7.50% 8/1/1999-6/1/2028 (1) 280,922 288,715
Federal Home Loan Mortgage Corp. 8.00% 5/1/2002-3/1/2028 (1) 147,329 152,402
Federal Home Loan Mortgage Corp. 8.50% 9/1/2001-1/1/2028 (1) 38,262 40,083
Federal Home Loan Mortgage Corp. 9.00% 8/1/2001-11/1/2027 (1) 11,909 12,596
Federal Home Loan Mortgage Corp. 9.50% 4/1/2016-6/1/2025 (1) 6,863 7,342
Federal Home Loan Mortgage Corp. 10.00% 7/1/2000-4/1/2025 (1) 1,263 1,373
Federal Home Loan Mortgage Corp. 10.50% 9/1/2000-12/1/2015 (1) 245 255
Federal Home Loan Mortgage Corp. 11.25% 8/1/2014 (1) 20 22
Federal Housing Administration Project 7.43% 10/1/2020 (1) 504 539
Federal National Mortgage Assn. 5.50% 1/1/2001-6/1/2009 (1) 1,711 1,703
Federal National Mortgage Assn. 6.00% 10/1/2000-9/1/2028 (1) 84,116 83,768
Federal National Mortgage Assn. 6.50% 2/1/2000-10/1/2028 (1) 237,644 239,453
Federal National Mortgage Assn. 7.00% 9/1/1999-9/1/2028 (1) 172,833 176,343
Federal National Mortgage Assn. 7.50% 1/1/2000-8/1/2027 (1) 84,396 86,697
Federal National Mortgage Assn. 7.75% 10/1/2002 (1) 241 244
Federal National Mortgage Assn. 8.00% 8/1/1999-9/1/2027 (1) 50,040 51,805
Federal National Mortgage Assn. 8.50% 4/1/2006-7/1/2027 (1) 18,478 19,378
Federal National Mortgage Assn. 9.00% 9/1/2003-1/1/2027 (1) 8,834 9,351
Federal National Mortgage Assn. 9.50% 10/1/2001-2/1/2025 (1) 4,518 4,830
Federal National Mortgage Assn. 10.00% 8/1/2005-6/1/2022 (1) 1,946 2,094
Federal National Mortgage Assn. 10.50% 11/1/2000-8/1/2020 (1) 508 555
Government National Mortgage Assn. 6.00% 3/1/2009-12/15/2028 (1) 31,025 30,863
Government National Mortgage Assn. 6.50% 9/15/2008-12/15/2028 (1) 165,829 167,578
Government National Mortgage Assn. 7.00% 6/15/2008-12/15/2028 (1) 246,106 251,736
Government National Mortgage Assn. 7.50% 2/15/2007-3/15/2028 (1) 177,245 182,822
Government National Mortgage Assn. 8.00% 11/15/2001-9/15/2029 (1) 149,291 155,283
Government National Mortgage Assn. 8.50% 5/15/2010-1/15/2028 (1) 37,170 39,506
Government National Mortgage Assn. 9.00% 8/15/2001-6/15/2027 (1) 25,219 26,972
Government National Mortgage Assn. 9.50% 1/1/2004-9/15/2025 (1) 14,527 15,710
Government National Mortgage Assn. 10.00% 3/15/2000-8/15/2025 (1) 3,535 3,877
Government National Mortgage Assn. 10.50% 11/15/2010-1/15/2021 (1) 2,350 2,614
Government National Mortgage Assn. 11.50% 3/15/2010-11/15/2017 (1) 299 341
Resolution Trust Corp. Collateralized Mortgage Obligations 7.45% 8/25/2022 (1) 543 537
Resolution Trust Corp. Collateralized Mortgage Obligations 10.35% 8/25/2021 (1) 783 790
-----------
3,356,114
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $5,964,687) 6,187,234
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (35.4%)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (5.5%)
AT&T Universal Card Master Trust Series 5.95% 10/17/2002 (1) 14,120 14,291
Advanta Credit Card Master Trust 6.05% 8/1/2003 (1) 8,750 8,873
American Express Credit Card Master Trust 6.40% 4/15/2005 (1) 17,000 17,744
American Express Credit Card Master Trust 6.80% 12/15/2003 (1) 25,854 26,739
American Express Credit Europe 5.375% 7/15/2001 (1) 16,250 16,270
American Express Credit Account Master Trust 7.60% 8/15/2002 (1) 2,000 2,115
California Infrastructure & Econ Dev Bank SP Trust PG&E 6.16% 12/14/2000 (1) 7,875 8,011
California Infrastructure & Econ Dev Bank SP Trust PG&E 6.42% 3/25/2005 (1) 11,325 11,951
Chase Manhattan Credit Card Master Trust 6.30% 4/15/2003 (1) 31,500 31,973
Chemical Master Credit Card Trust I 5.55% 9/15/2003 (1) 5,450 5,473
Discover Card Master Trust 5.40% 11/16/2001 (1) 11,438 11,449
Discover Card Master Trust I Series 5.75% 4/15/2001 (1) 13,500 13,621
First Bank Corp. Card Master Trust 6.40% 2/15/2003 (1) 5,030 5,200
First USA Credit Card Master Trust 6.42% 3/17/2005 (1) 9,450 9,796
Ford Credit Auto Owner Trust 5.90% 6/15/2002 (1) 71,000 72,103
Ford Credit Auto Loan Master Trust 6.50% 8/15/2002 (1) 20,750 21,092
Household Affinity Credit Card Master Trust 5.60% 5/15/2002 (1) 3,195 3,215
MBNA Master Credit Card Trust 5.40% 9/15/2000 (1) 1,250 1,248
MBNA Master Credit Card Trust 6.05% 11/15/2002 (1) 21,375 21,616
MBNA Master Credit Card Trust 6.60% 1/15/2003 (1) 8,500 8,679
MBNA Master Credit Card Trust 6.60% 11/15/2004 (1) 16,065 16,759
</TABLE>
20
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NationsBank Credit Card Master Trust 6.45% 4/15/2003 (1) $ 6,678 $ 6,803
Premier Auto Trust 5.69% 6/8/2002 (1) 38,300 38,628
Sears Credit Card Master Trust 5.80% 8/15/2005 (1) 38,000 38,451
Sears Credit Card Master Trust 6.05% 1/16/2008 (1) 19,500 20,011
Sears Credit Card Master Trust 6.25% 1/15/2003 (1) 3,483 3,487
Sears Credit Card Master Trust 7.00% 1/15/2004 (1) 2,500 2,540
Sears Credit Account Master Trust 8.10% 6/15/2004 (1) 2,350 2,421
Standard Credit Card Master Trust 6.55% 10/7/2007 (1) 2,850 3,028
Standard Credit Card Master Trust 6.80% 4/7/2001 (1) 15,850 15,917
Standard Credit Card Master Trust 7.85% 2/7/2002 (1) 43,261 44,442
Standard Credit Card Master Trust 8.25% 11/7/2003 (1) 1,020 1,100
Toyota Auto Lease Trust 5.35% 7/25/2002 (1) 54,475 54,443
Toyota Auto Lease Trust 6.35% 3/25/1999 (1) 7,250 7,358
-----------
566,847
-----------
FINANCE (16.8%)
American Express Credit Corp. 6.50% 8/1/2000 2,200 2,231
American Express Credit Corp. 8.50% 6/15/1999 2,325 2,359
American General Finance Corp. 5.84% 1/29/2001 1,500 1,514
American General Finance Corp. 5.875% 7/1/2000 3,770 3,784
American General Finance Corp. 6.20% 3/15/2003 3,100 3,129
American General Finance Corp. 7.45% 7/1/2002 1,575 1,655
American General Finance Corp. 8.00% 2/15/2000 12,100 12,400
Associates Corp. 5.85% 1/15/2001 1,550 1,563
Associates Corp. 6.00% 6/15/2000 6,500 6,550
Associates Corp. 6.25% 3/15/1999 7,500 7,513
Associates Corp. 6.375% 8/15/2000 43,500 44,136
Associates Corp. 6.44% 1/15/2004 1,625 1,677
Associates Corp. 6.50% 8/15/2002 3,000 3,098
Associates Corp. 6.50% 10/15/2002 11,975 12,383
Associates Corp. 6.625% 5/15/2001 3,300 3,385
Associates Corp. 6.625% 6/15/2005 1,000 1,039
Associates Corp. 6.68% 9/17/1999 5,600 5,649
Associates Corp. 7.50% 5/15/1999 3,700 3,727
Associates Corp. 7.50% 4/15/2002 5,800 6,148
Associates Corp. 7.875% 9/30/2001 1,105 1,171
Associates Corp. 9.125% 4/1/2000 1,000 1,043
Avalon Properties Inc. 6.875% 12/15/2007 9,550 9,310
Bank of New York 7.875% 11/15/2002 1,500 1,617
Bank of New York Capital I 7.97% 12/31/2026 3,225 3,590
Banc One Corp. 6.25% 9/1/2000 16,000 16,228
Banc One Corp. 6.25% 10/1/2001 21,500 21,949
Bank America Capital II 8.00% 12/15/2026 3,400 3,797
BankAmerica Corp. 7.50% 10/15/2002 400 425
BankAmerica Corp. 7.625% 6/15/2004 1,050 1,138
BankAmerica Corp. 7.75% 7/15/2002 3,000 3,201
BankAmerica Corp. 7.875% 12/1/2002 2,000 2,158
BankAmerica Corp. 8.50% 1/15/2007 5,000 5,677
BankAmerica Corp. 9.625% 2/13/2001 1,100 1,191
BankAmerica Corp. 10.00% 2/1/2003 4,900 5,658
Bear, Stearns & Co., Inc. 6.50% 6/15/2000 4,225 4,260
Bear, Stearns & Co., Inc. 6.625% 1/15/2004 3,150 3,208
Bear, Stearns & Co., Inc. 6.75% 8/15/2000 3,200 3,243
Bear, Stearns & Co., Inc. 6.75% 12/15/2007 3,635 3,730
Beneficial Corp. 6.35% 12/3/2001 1,500 1,531
BT Capital Trust B 7.90% 1/15/2027 1,100 1,153
CIGNA Corp. 7.875% 5/15/2027 13,875 15,018
CIGNA Corp. 8.30% 1/15/2023 835 952
CIT Group Holdings 6.625% 6/15/2005 7,900 8,207
CIT Group Inc. 5.35% 12/15/2000 25,000 24,924
CNA Financial Corp. 6.45% 1/15/2008 4,700 4,618
CNA Financial Corp 6.50% 4/15/2005 25,175 25,066
Camden Property Trust 7.00% 11/15/2006 4,250 4,014
Chase Capital I 7.67% 12/1/2026 3,100 3,317
</TABLE>
21
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Chase Manhattan Corp. 6.00% 11/1/2005 $ 15,250 $ 15,362
The Chase Manhattan Corp. 6.375% 2/15/2008 5,050 5,213
The Chase Manhattan Corp. 8.125% 6/15/2002 1,410 1,517
The Chase Manhattan Corp. 8.50% 2/15/2002 10,000 10,798
The Chase Manhattan Corp. 10.00% 6/15/1999 1,850 1,887
The Chase Manhattan Corp. 10.375% 3/15/1999 3,000 3,028
Chemical Bank 9.75% 6/15/1999 18,243 18,572
Chemical Banking Corp. 7.25% 9/15/2002 2,565 2,706
Chrysler Financial Corp. 5.25% 10/19/2000 68,500 68,399
Chrysler Financial Corp. 6.28% 6/21/1999 5,480 5,507
Chrysler Financial Corp. 6.28% 6/23/1999 5,000 5,025
Chrysler Financial Corp. 6.35% 6/22/1999 19,970 20,074
Chrysler Financial Co. LLC 5.625% 1/15/1999 2,725 2,725
Chrysler Financial Co. LLC 5.875% 2/7/2001 3,500 3,538
Chrysler Financial Co. LLC 6.375% 1/28/2000 7,195 7,270
Chrysler Financial Co. LLC 6.625% 8/15/2000 3,050 3,109
Citicorp 8.625% 12/1/2002 2,000 2,195
Citicorp 9.50% 2/1/2002 1,000 1,105
Citicorp 9.75% 8/1/1999 4,000 4,098
Comdisco Inc. 6.32% 11/27/2000 21,500 21,555
Comerica, Inc. 7.125% 12/1/2013 5,000 5,230
Commercial Credit Corp. 5.90% 9/1/2003 550 555
Commercial Credit Corp. 6.625% 11/15/2006 2,000 2,088
CoreStates Capital Corp. 6.625% 3/15/2005 6,900 7,187
CoreStates Capital Corp. 9.375% 4/15/2003 1,250 1,420
Countrywide Funding 8.25% 7/15/2002 3,750 3,975
Coutrywide Home Loan 6.45% 2/27/2003 1,000 1,002
Dean Witter, Discover & Co. 6.25% 3/15/2000 3,000 3,024
Dean Witter, Discover & Co. 6.75% 10/15/2013 800 829
Dean Witter, Discover & Co. 6.75% 8/15/2000 4,000 4,075
Dean Witter, Discover & Co. 6.875% 3/1/2003 2,300 2,386
Donaldson, Lufkin & Jenrette Securities Inc. 6.00% 12/1/2001 25,250 25,297
Donaldson, Lufkin & Jenrette Securities Inc. 6.50% 6/1/2008 20,000 20,122
Equity Residential Properties 6.55% 11/15/2001 16,750 16,516
Equitable Companies Inc. 7.00% 4/1/2028 4,310 4,452
Fifth Third Bancorp 6.75% 7/15/2005 5,000 5,271
Finova Capital Corp. 5.875% 10/15/2001 22,500 22,448
First Bank System Inc. 7.55% 6/15/2004 10,000 10,829
First Bank System Inc. 7.625% 5/1/2005 5,000 5,481
First Chicago Corp. 6.25% 7/21/2000 6,500 6,584
First Chicago Corp. 6.375% 1/30/2009 5,000 5,193
First Chicago Corp. 6.875% 6/15/2003 5,000 5,218
First Chicago Corp. 7.625% 1/15/2003 2,400 2,557
First Chicago Corp. 8.25% 6/15/2002 5,000 5,414
First Chicago Corp. 9.25% 11/15/2001 1,225 1,348
First Chicago Corp. 10.25% 5/1/2001 2,750 3,037
First Fidelity Bancorp 9.625% 8/15/1999 700 717
First Interstate Bancorp 8.625% 4/1/1999 8,295 8,360
First Interstate Bancorp 10.875% 4/15/2001 2,750 3,069
First Union Corp. 8.00% 11/15/2002 100 108
First Union Corp. 8.125% 6/24/2002 2,900 3,130
Fleet Capital Trust II 7.92% 12/11/2026 3,790 4,170
Fleet Financial Group, Inc. 7.25% 9/1/1999 1,000 1,012
Fleet Financial Group, Inc. 6.875% 3/1/2003 500 519
Fleet Financial Group, Inc. 7.125% 4/15/2006 5,700 6,149
Fleet/Norstar Group 8.125% 7/1/2004 4,600 5,084
Fleet Credit Card 6.82% 4/9/2001 5,000 5,151
Fleet Mortgage Group 6.50% 6/15/2000 16,045 16,290
Ford Motor Credit Co. 5.125% 10/15/2001 69,150 68,813
Ford Motor Credit Co. 6.55% 9/10/2002 1,740 1,795
Ford Motor Credit Co. 6.75% 5/15/2005 1,385 1,463
Ford Motor Credit Co. 6.85% 8/15/2000 17,105 17,492
Ford Motor Credit Co. 7.25% 5/15/1999 500 504
</TABLE>
22
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ford Motor Credit Co. 7.50% 1/15/2003 $ 1,000 $ 1,066
Ford Motor Credit Co. 7.75% 3/15/2005 1,000 1,104
Ford Motor Credit Co. 8.00% 6/15/2002 2,850 3,064
Ford Motor Credit Co. 8.375% 1/15/2000 2,655 2,734
Ford Motor Credit Co. 9.00% 9/15/2001 5,000 5,442
General Electric Capital Corp. 5.59% 4/10/2000 6,000 6,028
General Electric Capital Corp. 5.77% 8/27/2001 9,700 9,832
General Electric Capital Corp. 5.89% 5/11/2001 10,000 10,152
General Electric Capital Corp. 5.89% 5/15/2000 5,000 5,046
General Electric Capital Corp. 6.90% 9/15/2015 9,000 9,907
General Electric Capital Corp. 8.30% 9/20/2009 275 335
General Motors Acceptance Corp. 5.85% 4/6/2000 34,200 34,361
General Motors Acceptance Corp. 6.625% 10/1/2002 5,150 5,331
General Motors Acceptance Corp. 6.625% 1/10/2002 22,100 22,759
General Motors Acceptance Corp. 6.875% 7/15/2001 1,500 1,551
General Motors Acceptance Corp. 7.00% 3/1/2000 3,300 3,356
General Motors Acceptance Corp. 7.125% 6/1/1999 2,950 2,971
General Motors Acceptance Corp. 7.125% 5/1/2001 10,975 11,371
General Motors Acceptance Corp. 7.125% 5/1/2003 1,300 1,371
General Motors Acceptance Corp. 8.00% 10/1/1999 3,000 3,057
General Motors Acceptance Corp. 8.40% 10/15/1999 4,190 4,284
General Motors Acceptance Corp. 8.50% 1/1/2003 6,200 6,815
General Motors Acceptance Corp. 8.625% 6/15/1999 4,250 4,311
General Motors Acceptance Corp. 9.00% 10/15/2002 10,650 11,879
General Motors Acceptance Corp. 9.375% 4/1/2000 3,515 3,677
General Motors Acceptance Corp. 9.625% 12/15/2001 5,895 6,551
Great Western Finance 6.375% 7/1/2000 16,100 16,272
HRPT Properties Trust 6.75% 12/18/2002 16,250 15,921
Household Finance Corp. 6.45% 3/15/2001 700 712
Household Finance Corp. 6.45% 2/1/2009 2,430 2,509
Household Finance Corp. 6.70% 6/15/2002 1,500 1,543
Household Finance Corp. 7.25% 7/15/2003 1,000 1,054
Household Finance Corp. 7.65% 5/15/2007 3,250 3,607
Household Finance Corp. 7.75% 6/1/1999 1,000 1,009
International Lease Finance Corp. 6.20% 5/1/2000 4,000 4,030
International Lease Finance Corp. 6.30% 11/1/1999 2,400 2,423
International Lease Finance Corp. 6.375% 8/1/2001 7,500 7,636
International Lease Finance Corp. 6.50% 7/1/2001 2,050 2,092
International Lease Finance Corp. 6.625% 6/1/2000 10,000 10,140
JDN Realty Corp. 6.80% 8/1/2004 10,500 10,053
Lehman Brothers Holdings Inc. 6.15% 3/15/2000 18,500 18,447
Lehman Brothers Holdings Inc. 6.625% 11/15/2000 7,861 7,893
Lehman Brothers Holdings Inc. 6.90% 1/29/2001 10,800 10,899
Lehman Brothers Holdings Inc. 7.20% 8/15/2009 16,720 17,331
Lehman Brothers Holdings Inc. 7.625% 6/1/2006 850 902
Lehman Brothers Holdings Inc. 8.375% 2/15/1999 5,400 5,411
Liberty Financial Cos., Inc. 6.75% 11/15/2008 11,000 11,348
Mellon Bank Corp. 6.50% 8/1/2005 5,300 5,494
Mellon Bank Corp. 6.75% 6/1/2003 2,775 2,887
Mellon Bank Corp. 7.375% 5/15/2007 3,500 3,870
Mellon Bank Senior Holding Co. 5.75% 11/15/2003 4,400 4,420
Mellon Capital II 7.995% 1/15/2027 3,150 3,516
Mellon Financial Corp. 7.625% 11/15/1999 850 867
Mellon Financial Corp. 9.75% 6/15/2001 6,647 7,292
Merrill Lynch & Co., Inc. 5.87% 11/15/2001 21,750 21,961
Merrill Lynch & Co., Inc. 6.00% 1/15/2001 1,000 1,011
Merrill Lynch & Co., Inc. 6.07% 10/15/2001 44,700 45,385
Merrill Lynch & Co., Inc. 6.38% 7/18/2000 1,000 1,013
Merrill Lynch & Co., Inc. 6.50% 4/1/2001 18,500 18,890
Merrill Lynch & Co., Inc. 6.64% 9/19/2002 2,995 3,084
Merrill Lynch & Co., Inc. 6.875% 11/15/2018 3,750 3,867
Merrill Lynch & Co., Inc. 7.00% 3/15/2006 300 319
Merrill Lynch & Co., Inc. 8.00% 2/1/2002 2,600 2,765
</TABLE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch & Co., Inc. 8.30% 11/1/2002 $ 2,735 $ 2,982
Morgan Stanley, Dean Witter, Discover & Co. 5.89% 3/20/2000 40,900 41,057
Morgan Stanley, Dean Witter, Discover & Co. 6.375% 8/1/2002 7,000 7,143
Morgan Stanley, Dean Witter, Discover & Co. 6.875% 3/1/2007 7,300 7,701
Morgan Stanley, Dean Witter, Discover & Co. 7.00% 10/1/2013 700 742
NCNB Corp. 9.50% 6/1/2004 1,725 2,026
NAC Re Corp. 7.15% 11/15/2005 1,500 1,560
NB Capital Trust II 7.83% 12/15/2026 5,000 5,447
National City Corp. 7.20% 5/15/2005 10,000 10,689
NationsBank Corp. 5.75% 3/15/2001 500 503
Nationsbank Corp. 6.375% 2/15/2008 1,500 1,559
NationsBank Corp. 6.50% 3/15/2006 5,600 5,833
NationsBank Corp. 6.875% 2/15/2005 580 609
NationsBank Corp. 7.00% 9/15/2001 1,800 1,870
NationsBank Corp. 7.25% 10/15/2025 1,625 1,759
NationsBank Corp. 7.50% 9/15/2006 1,000 1,105
NationsBank Corp. 7.75% 8/15/2004 5,000 5,460
NationsBank Texas 6.75% 8/15/2000 9,800 10,007
Norwest Corp. 5.75% 2/1/2003 4,000 4,010
Norwest Corp. 6.125% 10/15/2000 2,000 2,026
Norwest Corp. 6.65% 10/15/2023 40 41
Norwest Corp. 6.80% 5/15/2002 5,000 5,186
Norwest Corp. 7.125% 4/1/2000 500 510
Norwest Financial, Inc. 6.25% 11/1/2002 1,000 1,024
Norwest Financial, Inc. 7.875% 2/15/2002 1,000 1,067
Orion Capital Corp. 7.25% 7/15/2005 9,200 9,228
Orion Capital Corp. 9.125% 9/1/2002 5,421 5,789
PaineWebber Group, Inc. 6.50% 11/1/2005 500 500
PaineWebber Group, Inc. 7.00% 3/1/2000 5,350 5,402
PaineWebber Group, Inc. 7.875% 2/15/2003 2,250 2,361
Pitney Bowes Credit Corp. 9.25% 6/15/2008 2,000 2,511
Realty Income Corp. 7.75% 5/6/2007 3,000 2,926
Republic New York Corp. 7.75% 5/15/2002 3,000 3,179
Republic New York Corp. 7.75% 5/15/2009 4,300 4,870
Republic New York Corp. 9.70% 2/1/2009 5,000 6,378
Salomon, Inc. 6.50% 3/1/2000 18,200 18,409
Salomon, Inc. 6.65% 7/15/2001 7,050 7,221
Salomon, Inc. 6.70% 7/5/2000 2,000 2,032
Salomon, Inc. 7.20% 2/1/2004 1,000 1,054
Salomon Smith Barney Holdings Inc. 5.50% 1/15/1999 5,000 5,000
Salomon Smith Barney Holdings Inc. 5.875% 2/1/2001 13,200 13,280
Salomon Smith Barney Holdings Inc. 6.50% 10/15/2002 300 307
Salomon Smith Barney Holdings Inc. 6.625% 6/1/2000 10,000 10,138
Salomon Smith Barney Holdings Inc. 7.00% 5/15/2000 6,000 6,102
Salomon Smith Barney Holdings Inc. 7.375% 5/15/2007 2,000 2,156
Salomon Smith Barney Holdings Inc. 7.98% 3/1/2000 2,000 2,050
Sears, Roebuck & Co. Acceptance Corp. 6.125% 1/15/2006 5,500 5,536
Sears, Roebuck & Co. Acceptance Corp. 6.25% 1/15/2004 2,700 2,764
Sears, Roebuck & Co. Acceptance Corp. 6.50% 6/15/2000 18,185 18,425
Sears, Roebuck & Co. Acceptance Corp. 6.63% 7/9/2002 1,600 1,645
Sears, Roebuck & Co. Acceptance Corp. 7.19% 6/18/2001 800 829
Sears, Roebuck & Co. Acceptance Corp. 9.375% 11/1/2011 1,845 2,346
Security Capital Pacific Trust 8.05% 4/1/2017 4,300 4,223
Shurgard Storage Centers, Inc. 7.50% 4/25/2004 3,000 2,976
Simon DeBartolo Group, Inc. 6.75% 7/15/2004 10,000 9,818
Spieker Properties Inc. 7.50% 10/1/2027 700 640
Summit Bancorp 8.625% 12/10/2002 5,000 5,446
Summit Properties Inc. 6.80% 8/15/2002 3,500 3,409
Summit Properties Inc. 6.95% 8/15/2004 17,500 16,907
Summit Properties Inc. 7.20% 8/15/2007 1,000 965
Suntrust Capital 7.90% 6/15/2027 2,085 2,290
SunTrust Banks, Inc. 6.00% 2/15/2026 5,000 5,087
SunTrust Banks, Inc. 7.375% 7/1/2002 5,000 5,282
</TABLE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SunTrust Banks, Inc. 7.375% 7/1/2006 $ 3,500 $ 3,855
Susa Partnership LP 7.00% 12/1/2007 1,050 1,015
Susa Partnership LP 7.50% 12/1/2027 5,025 4,516
Toyota Motor Credit Corp. 5.50% 9/17/2001 45,750 45,954
Toyota Motor Credit Corp. 5.625% 11/13/2003 3,750 3,724
Travelers Property Casualty Corp. 6.75% 4/15/2001 14,000 14,314
Travelers Property Casualty Corp. 7.75% 4/15/2026 1,000 1,118
USF&G Corp. 7.125% 6/1/2005 600 637
U.S. Bancorp 8.27% 12/15/2026 3,250 3,714
U.S. Bank N.A. Minnesota 5.70% 12/15/2008 7,000 6,957
United Dominion Realty Trust, Inc. 7.25% 1/15/2007 3,500 3,305
U.S. Leasing International 6.625% 5/15/2003 195 200
Wachovia Corp. 5.625% 1/15/2009 8,000 7,948
Wachovia Corp. 6.375% 4/15/2003 110 113
Wachovia Corp. 6.80% 6/1/2005 10,000 10,588
Wachovia Corp. 7.00% 12/15/1999 600 609
Wells Fargo & Co. 6.125% 11/1/2003 5,000 5,100
Wells Fargo & Co. 6.25% 4/15/2008 915 947
Wells Fargo & Co. 6.875% 4/1/2006 6,400 6,816
Wells Fargo Capital I 7.96% 12/15/2026 3,600 4,002
-----------
1,727,438
-----------
INDUSTRIAL (8.9%)
American Stores Co. 8.00% 6/1/2026 10,500 12,366
Anheuser-Busch Cos., Inc. 6.75% 12/15/2027 1,600 1,736
Anheuser-Busch Cos., Inc. 7.10% 6/15/2007 5,050 5,532
Anheuser-Busch Cos., Inc. 7.125% 7/1/2017 3,850 4,111
Anheuser-Busch Cos., Inc. 7.375% 7/1/2023 800 876
Applied Materials, Inc. 8.00% 9/1/2004 1,625 1,762
Archer-Daniels-Midland Co. 6.25% 5/15/2003 1,000 1,030
Archer-Daniels-Midland Co. 8.875% 4/15/2011 3,745 4,753
Auburn Hills 12.00% 5/1/2020 770 1,302
BP America, Inc. 9.375% 11/1/2000 1,500 1,605
C.R. Bard, Inc. 6.70% 12/1/2026 13,650 14,582
Baxter International, Inc. 9.25% 12/15/1999 100 103
Bayer Corp. 6.65% 2/15/2028 1,300 1,344
Black & Decker Corp. 6.625% 11/15/2000 12,000 12,152
Black & Decker Corp. 7.50% 4/1/2003 22,800 23,894
The Boeing Co. 6.625% 2/15/2038 11,000 11,054
The Boeing Co. 8.75% 8/15/2021 1,800 2,291
Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 6,750 6,990
Burlington Northern Santa Fe Corp. 6.875% 2/15/2016 2,900 3,045
Burlington Northern Santa Fe Corp. 7.00% 12/15/2025 7,205 7,670
Burlington Northern Santa Fe Corp. 7.25% 8/1/2097 4,450 4,751
Burlington Northern Santa Fe Corp. 9.25% 10/1/2006 750 906
CSX Corp. 6.80% 12/1/2028 3,000 3,023
CSX Corp. 8.625% 5/15/2022 875 1,065
CSX Corp. 9.00% 8/15/2006 700 826
Canadian National Railway Co. 6.80% 7/15/2018 13,750 13,989
Canadian National Railway Co. 6.90% 7/15/2028 4,000 4,108
Caterpillar, Inc. 7.375% 3/1/2097 8,900 9,665
Caterpillar, Inc. 9.00% 4/15/2006 1,600 1,905
Chrysler Corp. 7.45% 2/1/2097 4,375 4,983
Comcast Cablevision 8.125% 5/1/2004 7,850 8,663
Comcast Cablevision 8.375% 5/1/2007 5,000 5,782
Comcast Cablevision 8.875% 5/1/2017 3,300 4,115
Conrail Corp. 9.75% 6/15/2020 1,680 2,226
Continental Airlines P/T Trust 6.331% 10/15/2004 (1) 4,075 4,072
Continental Airlines P/T Trust 6.41% 10/15/2008 (1) 875 892
Continental Airlines, Inc (Equipment Trust Certificates) 6.648% 3/15/2019 10,910 11,296
Cyprus AMAX Minerals Co. 7.375% 5/15/2007 6,000 6,060
Dayton Hudson Corp. 6.65% 8/1/2028 5,600 5,740
Dayton Hudson Corp. 6.75% 1/1/2028 1,000 1,038
Dayton Hudson Corp. 9.75% 7/1/2002 1,000 1,127
</TABLE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deere & Co. 8.50% 1/9/2022 $ 985 $ 1,220
Delta Airlines, Inc. (Equipment Trust Certificates) 8.54% 1/2/2007 3,777 4,125
Dillard's Inc. 5.79% 11/15/2001 26,000 25,994
Dillard's Inc. 6.625% 11/15/2008 7,000 7,184
Dillard's Inc. 7.75% 5/15/2027 1,000 1,093
Dillard's Inc. 7.85% 10/1/2012 2,700 2,985
The Walt Disney Co. 7.55% 7/15/2093 2,597 3,044
Dow Chemical Co. 8.50% 6/8/2010 2,500 2,918
Eastman Chemical Co. 6.375% 1/15/2004 6,925 6,903
Eastman Chemical Co. 7.25% 1/15/2024 3,700 3,641
Eastman Chemical Co. 7.60% 2/1/2027 2,988 3,026
Federated Department Stores, Inc. 7.00% 2/15/2028 1,060 1,095
Federated Department Stores, Inc. 7.45% 7/15/2017 11,125 12,078
Federated Department Stores, Inc. 8.125% 10/15/2002 5,000 5,356
First Data Corp. 5.80% 12/15/2008 14,500 14,325
First Data Corp. 6.375% 12/15/2007 1,000 1,032
First Data Corp. 6.625% 4/1/2003 5,135 5,313
Ford Capital BV 9.50% 7/1/2001 1,925 2,102
Ford Capital BV 9.50% 6/1/2010 825 1,052
Ford Capital BV 9.875% 5/15/2002 2,250 2,531
Ford Holdings 9.25% 3/1/2000 5,900 6,133
Ford Motor Corp. 7.50% 11/15/1999 2,000 2,035
Ford Motor Corp. 9.98% 2/15/2032 835 1,240
Fortune Brands 7.875% 1/15/2023 1,900 2,284
Gannett Co. 5.85% 5/1/2000 1,000 1,006
General Motors Corp. 7.00% 6/15/2003 2,000 2,113
General Motors Corp. 9.125% 7/15/2001 7,900 8,565
H.J. Heinz Co. 6.875% 1/15/2003 100 106
Hertz Corp. 6.00% 2/1/2001 15,000 15,082
Illinois Central Railroad Co. 6.75% 5/15/2003 8,345 8,679
International Business Machines Corp. 6.375% 6/15/2000 500 508
International Business Machines Corp. 6.45% 8/1/2007 1,000 1,074
International Business Machines Corp. 6.50% 1/15/2028 650 687
International Business Machines Corp. 7.125% 12/1/2096 11,325 12,625
International Paper Co. 7.875% 8/1/2006 2,265 2,464
Kroger Co. 6.375% 3/1/2008 6,725 6,824
Kroger Co. 7.65% 4/15/2007 7,550 8,269
Kroger Co. 8.15% 7/15/2006 2,700 3,006
Lafarge Corp. 6.375% 7/15/2005 2,000 2,047
Lockheed Martin Corp. 6.85% 5/15/2001 8,500 8,759
Lockheed Martin Corp. 7.65% 5/1/2016 5,000 5,570
May Department Stores Co. 9.75% 2/15/2021 1,680 2,318
May Department Stores Co. 9.875% 12/1/2002 1,775 2,035
McDonald's Corp. 6.75% 2/15/2003 945 961
Mobil Corp. 7.625% 2/23/2033 920 981
Monsanto Co. 5.375% 12/1/2001 25,500 25,464
Monsanto Co. 5.75% 12/1/2005 17,000 16,956
Monsanto Co. 6.60% 12/1/2028 4,000 4,021
News America Holdings Inc. 8.00% 10/17/2016 9,250 10,262
News America Holdings Inc. 8.50% 2/15/2005 2,600 2,901
Norfolk Southern Corp. 6.875% 5/1/2001 23,475 24,245
Norfolk Southern Corp. 7.70% 5/15/2017 3,450 3,914
Norfolk Southern Corp. 7.80% 5/15/2027 4,375 5,082
Norfolk Southern Corp. 7.90% 5/15/2097 1,750 2,066
Northrop Grumman Corp. 7.00% 3/1/2006 15,700 16,370
Occidental Petroleum Corp. 8.50% 11/9/2001 14,750 15,528
Occidental Petroleum Corp. 8.50% 9/15/2004 2,500 2,546
Occidental Petroleum Corp. 10.125% 11/15/2001 7,000 7,645
J.C. Penney & Co., Inc. 6.125% 11/15/2003 2,000 2,033
J.C. Penney & Co., Inc. 6.875% 6/15/1999 3,000 3,021
J.C. Penney & Co., Inc. 7.125% 11/15/2023 1,855 1,906
J.C. Penney & Co., Inc. 9.05% 3/1/2001 625 665
PepsiCo, Inc. 6.25% 9/1/1999 650 653
</TABLE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Petro Geo-Services 6.25% 11/19/2003 $ 2,500 $ 2,474
Petro Geo-Services 7.50% 3/31/2007 6,510 6,760
Philip Morris Cos., Inc. 6.00% 7/15/2001 110 111
Philip Morris Cos., Inc. 7.00% 7/15/2005 7,150 7,616
Philip Morris Cos., Inc. 7.20% 2/1/2007 1,450 1,568
Philip Morris Cos., Inc. 8.25% 10/15/2003 1,900 2,097
Phillips Petroleum Co. 8.49% 1/1/2023 2,100 2,283
Phillips Petroleum Co. 9.00% 6/1/2001 3,900 4,203
Praxair, Inc. 6.70% 4/15/2001 12,225 12,395
Praxair, Inc. 6.75% 3/1/2003 1,000 1,020
Praxair, Inc. 6.90% 11/1/2006 10,750 11,010
Raytheon Co. 6.15% 11/1/2008 2,500 2,559
Raytheon Co. 6.45% 8/15/2002 6,500 6,672
Raytheon Co. 6.50% 7/15/2005 3,900 4,071
Raytheon Co. 6.75% 3/15/2018 1,600 1,654
Raytheon Co. 7.00% 11/1/2028 10,880 11,503
Rockwell International Corp. 8.875% 9/15/1999 110 113
Rohm & Haas Co. 9.80% 4/15/2020 4,450 5,793
Safeway Inc. 5.75% 11/15/2000 23,950 23,951
Safeway Inc. 5.875% 11/15/2001 10,450 10,446
Safeway Inc. 6.50% 11/15/2008 2,000 2,072
Safeway Inc. 6.85% 9/15/2004 19,300 19,992
TCI Communications, Inc. 7.25% 8/1/2005 5,480 5,943
TCI Communications, Inc. 7.875% 8/1/2013 10,950 12,794
TCI Communications, Inc. 8.00% 8/1/2005 990 1,114
TCI Communications, Inc. 8.65% 9/15/2004 5,000 5,715
Tele-Communications Inc. 6.375% 5/1/2003 36,325 37,403
Tele-Communications, Inc. 9.875% 6/15/2022 500 705
Tenneco, Inc. 8.20% 11/15/1999 12,500 12,715
Tenneco, Inc. 10.075% 2/1/2001 5,150 5,551
Texaco Capital Corp. 5.70% 12/1/2008 2,425 2,454
Texaco Capital Corp. 7.50% 3/1/2043 850 906
Texaco Capital Corp. 8.25% 10/1/2006 1,000 1,167
Texaco Capital Corp. 8.875% 9/1/2021 705 913
Texaco Capital Corp. 9.00% 12/15/1999 300 310
Texas Instruments Inc. 6.125% 2/1/2006 6,300 6,487
Time Warner, Inc. 7.57% 2/1/2024 1,500 1,679
Time Warner, Inc. 7.75% 6/15/2005 9,000 9,991
Time Warner, Inc. 9.125% 1/15/2013 1,000 1,254
Time Warner Entertainment 8.375% 3/15/2023 8,150 9,954
Time Warner Entertainment 9.625% 5/1/2002 3,900 4,367
Tosco Corp. 7.00% 7/15/2000 16,000 16,215
Tosco Corp. 7.80% 1/1/2027 1,650 1,740
USA Waste Services Inc. 7.00% 7/15/2028 2,700 2,755
USA Waste Services Inc. 7.125% 12/15/2017 1,505 1,566
Union Carbide Corp. 6.75% 4/1/2003 3,500 3,533
Union Carbide Corp. 7.75% 10/1/2096 4,350 4,272
Union Carbide Corp. 7.875% 4/1/2023 4,755 4,985
Union Oil of California 7.20% 5/15/2005 5,000 5,158
Union Pacific Corp. 7.00% 6/15/2000 5,000 5,072
Union Pacific Corp. 7.00% 2/1/2016 1,450 1,451
Union Pacific Corp. 8.625% 5/15/2022 2,865 3,118
United Technologies Corp. 6.70% 8/1/2028 10,442 11,131
United Technologies Corp. 8.875% 11/15/2019 4,000 5,265
United Telecom 9.75% 4/1/2000 1,000 1,051
WMX Technologies Inc. 6.25% 10/15/2000 3,315 3,346
WMX Technologies Inc. 7.65% 3/15/2011 4,400 4,915
Whirlpool Corp. 9.00% 3/1/2003 2,250 2,505
Whirlpool Corp. 9.10% 2/1/2008 940 1,141
-----------
913,100
-----------
UTILITIES (4.2%)
AT&T Corp. 7.125% 1/15/2002 1,100 1,157
AT&T Corp. 8.35% 1/15/2025 2,350 2,693
</TABLE>
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<TABLE>
<CAPTION>
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FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama Power Co. 6.00% 3/1/2000 $ 1,950 $ 1,963
Ameritech Capital Funding 6.15% 1/15/2008 12,175 12,828
Ameritech Capital Funding 7.50% 4/1/2005 4,950 5,547
Arizona Public Service Co. 7.25% 8/1/2023 2,150 2,242
Baltimore Gas & Electric Co. 8.375% 8/15/2001 5,570 5,983
Bell Atlantic Corp. 7.00% 6/15/2013 4,000 4,298
Bellsouth Capital Funding 6.04% 11/15/2026 1,350 1,390
Carolina Power & Light Co. 6.875% 8/15/2023 2,550 2,591
Carolina Power & Light Co. 8.20% 7/1/2022 110 118
Cincinnati Gas & Electric Co. 6.45% 2/15/2004 1,000 1,044
Coastal Corp. 7.42% 2/15/2037 1,800 1,854
Coastal Corp. 7.75% 10/15/2035 6,600 7,075
Coastal Corp. 8.125% 9/15/2002 2,300 2,464
Coastal Corp. 9.625% 5/15/2012 4,700 6,041
Commonwealth Edison 7.375% 9/15/2002 7,500 8,042
Consolidated Edison Co. of New York, Inc. 6.375% 4/1/2003 5,000 5,173
Consolidated Edison Co. of New York, Inc. 6.625% 2/1/2002 1,000 1,032
Enron Corp. 6.40% 7/15/2006 8,250 8,317
Enron Corp. 6.45% 11/15/2001 1,000 1,013
Enron Corp. 6.625% 11/15/2005 1,100 1,126
Enron Corp. 6.875% 10/15/2007 7,500 7,806
Enron Corp. 7.125% 5/15/2007 6,100 6,438
Enron Corp. 7.625% 9/10/2004 2,000 2,153
Enron Corp. 9.65% 5/15/2001 4,150 4,479
GTE Corp. 7.83% 5/1/2023 4,000 4,340
GTE Corp. 8.75% 11/1/2021 3,435 4,401
GTE Corp. 9.10% 6/1/2003 225 256
GTE Florida, Inc. 6.31% 12/15/2002 5,000 5,139
GTE South Inc. 6.125% 6/15/2007 11,000 11,450
HNG Internorth 9.625% 3/15/2006 4,680 5,564
Houston Lighting & Power Co. 8.75% 3/1/2022 1,050 1,135
Illinois Power Co. 7.50% 7/15/2025 4,200 4,239
MCI Communications Corp. 6.50% 4/15/2010 11,175 11,709
MCI Communications Corp. 7.50% 8/20/2004 4,050 4,413
MCI Communications Corp. 7.75% 3/23/2025 4,650 4,898
Michigan Bell Telephone Co. 7.50% 2/15/2023 1,610 1,725
National Rural Utility Co. 5.00% 10/1/2002 11,700 11,529
National Rural Utility Co. 6.20% 2/1/2008 18,000 18,848
National Rural Utility Co. 6.42% 5/1/2008 11,200 11,809
National Rural Utility Co. 6.75% 9/1/2001 4,350 4,497
New England Telephone & Telegraph Co. 6.875% 10/1/2023 890 904
New England Telephone & Telegraph Co. 7.875% 11/15/2029 6,150 7,569
New England Telephone & Telegraph Co. 8.625% 8/1/2001 2,500 2,701
New England Telephone & Telegraph Co. 9.00% 8/1/2031 3,750 4,245
New Jersey Bell Telephone Co. 6.625% 4/1/2008 190 192
New York Telephone Co. 6.125% 1/15/2010 1,250 1,307
New York Telephone Co. 7.00% 8/15/2025 1,925 2,011
New York Telephone Co. 7.25% 2/15/2024 5,000 5,307
Northern States Power Co. 7.125% 7/1/2025 5,000 5,655
Pacific Bell Telephone Co. 7.25% 7/1/2002 250 266
Pacific Gas & Electric Co. 6.25% 8/1/2003 5,000 5,157
Pacific Gas & Electric Co. 6.75% 10/1/2023 150 150
Pacific Gas & Electric Co. 8.25% 11/1/2022 4,000 4,431
Pacific Gas & Electric Co. 8.375% 5/1/2025 5,000 5,460
Pacific Gas & Electric Co. 8.75% 1/1/2001 2,000 2,122
Pennsylvania Power & Light Co. 6.50% 4/1/2005 135 142
Public Service Electric & Gas Co. 6.50% 5/1/2004 170 179
South Carolina Electric & Gas 9.00% 7/15/2006 145 172
Southern California Edison Co. 5.625% 10/1/2002 4,000 4,057
Southern California Edison Co. 6.375% 1/15/2006 2,350 2,467
Southern California Edison Co. 6.75% 1/15/2000 600 608
Southern California Gas 7.375% 3/1/2023 120 125
</TABLE>
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<TABLE>
<CAPTION>
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FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Southwestern Bell Telephone Co. 6.625% 7/15/2007 $ 12,000 $ 12,984
Southwestern Bell Telephone Co. 7.25% 7/15/2025 10,650 11,182
Southwestern Bell Telephone Co. 7.625% 3/1/2023 8,355 9,124
Sprint Capital Corp. 6.875% 11/15/2028 22,050 22,925
Texas Utilities Co. 7.375% 8/1/2001 2,800 2,925
Texas Utilities Co. 7.875% 3/1/2023 2,075 2,200
Texas Utilities Co. 8.75% 11/1/2023 180 197
Texas Utilities Electric Co. 7.17% 8/1/2007 650 711
U S WEST Capital Funding, Inc. 6.125% 7/15/2002 3,000 3,071
U S WEST Communications Inc. 6.875% 9/15/2033 165 167
U S WEST Communications Inc. 7.25% 9/15/2025 18,000 20,094
Union Electric Power Co. 6.75% 5/1/2008 40 44
Virginia Electric & Power Co. 6.625% 4/1/2003 2,300 2,408
Virginia Electric & Power Co. 6.75% 10/1/2023 17,000 16,817
Wisconsin Electric Power Co. 7.70% 12/15/2027 65 70
WorldCom Inc. 6.125% 8/15/2001 42,360 43,086
WorldCom Inc. 6.25% 8/15/2003 12,000 12,363
WorldCom Inc. 6.40% 8/15/2005 180 188
WorldCom Inc. 6.95% 8/15/2028 1,500 1,613
-----------
428,215
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $3,570,961) 3,635,600
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(3.1%)
- -----------------------------------------------------------------------------------------------------------------------------------
Province of Alberta 9.25% 4/1/2000 5,075 5,318
Amoco Canada Petroleum Co. 6.75% 2/15/2005 145 154
Asian Development Bank 9.125% 6/1/2000 740 777
Bayerische Landesbank 7.375% 12/14/2002 145 155
Bayerische Landesbank 5.875% 4/7/2000 21,500 21,700
British Aerospace 8.50% 6/10/2002 3,000 3,232
Province of British Columbia 7.00% 1/15/2003 2,550 2,702
Canadian Imperial Bank of Commerce (NY Branch) 6.20% 8/1/2000 55,200 55,780
Embotelladora Andina SA 7.875% 10/1/2097 10,200 7,512
European Investment Bank 10.125% 10/1/2000 125 136
Falconbridge Ltd. 7.35% 11/1/2006 1,000 982
Finland Global Bond 7.875% 7/28/2004 10,300 11,530
Grand Metropolitan Investment Corp. 8.625% 8/15/2001 2,600 2,792
Grand Metropolitan Investment Corp. 9.00% 8/15/2011 2,225 2,784
Hanson Overseas 7.375% 1/15/2003 7,100 7,503
Inter-American Development Bank 7.125% 3/15/2023 975 1,069
Inter-American Development Bank 8.50% 3/15/2011 2,705 3,415
International Bank for Reconstruction & Development 9.25% 7/15/2017 1,615 2,220
KFW International Finance, Inc. 7.20% 3/15/2014 3,550 4,062
KFW International Finance, Inc. 7.625% 2/15/2004 7,025 7,746
KFW International Finance, Inc. 8.85% 6/15/1999 1,025 1,042
KFW International Finance, Inc. 9.125% 5/15/2001 2,400 2,607
Province of Manitoba 7.75% 2/1/2002 6,975 7,428
Province of Manitoba 8.75% 5/15/2001 6,200 6,666
Province of Manitoba 9.125% 1/15/2018 4,850 6,482
Province of Manitoba 9.25% 4/1/2020 2,645 3,625
Province of Manitoba 9.50% 10/1/2000 1,560 1,668
Province of Manitoba 9.625% 3/15/1999 2,500 2,521
Province of Manitoba 9.625% 12/1/2018 3,500 4,906
National Australia Bank 6.60% 12/10/2007 2,000 2,083
National Westminster Bancorp Inc. 9.375% 11/15/2003 2,800 3,212
Province of New Brunswick 6.75% 8/15/2013 210 235
Province of New Brunswick 8.75% 5/1/2022 5,100 6,700
Province of New Brunswick 9.75% 5/15/2020 8,500 12,058
New Zealand Government 8.75% 12/15/2006 1,175 1,421
New Zealand Government 10.625% 11/15/2005 400 519
Province of Newfoundland 7.32% 10/13/2023 8,050 8,899
Province of Newfoundland 9.00% 6/1/2019 1,400 1,800
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noranda Inc. 7.00% 7/15/2005 $ 1,045 $ 1,022
Noranda Forest 7.50% 7/15/2003 6,825 6,969
Northern Telecom Ltd. 6.875% 9/1/2023 4,565 4,611
Province of Ontario 7.375% 1/27/2003 915 977
Province of Ontario 7.75% 6/4/2002 1,175 1,262
Petro-Canada 7.875% 6/15/2026 10,000 10,753
Petro-Canada 9.25% 10/15/2021 700 870
Petro Geo-Services 6.625% 3/30/2008 7,675 7,527
Petro Geo-Services 7.125% 3/30/2028 9,370 8,809
Republic of Portugal 5.75% 10/8/2003 14,650 15,017
Province of Saskatchewan 6.625% 7/15/2003 19,750 20,753
Province of Saskatchewan 7.125% 3/15/2008 1,200 1,326
Province of Saskatchewan 7.375% 7/15/2013 1,800 2,093
Province of Saskatchewan 8.00% 7/15/2004 15,950 17,898
Sweden Global Bond 6.50% 3/4/2003 145 152
Swiss Bank Corp.-New York 7.00% 10/15/2015 750 773
Swiss Bank Corp.-New York 7.375% 6/15/2017 1,600 1,715
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $296,400) 317,968
- -----------------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.5%)
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.76% 1/4/1999 133,091 133,091
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note F 4.77%-4.78% 1/4/1999 18,678 18,678
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $151,769) 151,769
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(COST $9,983,817) 10,292,571
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.3%)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 493,890
Payables for Investment Securities Purchased (483,475)
Other Liabilities--Note F (44,961)
------------
(34,546)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $10,258,025
===================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT
(000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Paid in Capital--Note D $ 9,934,370
Undistributed Net Investment Income --
Accumulated Net Realized Gains--Note D 14,901
Unrealized Appreciation--Note E 308,754
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $10,258,025
===================================================================================================================================
Investor Shares--Net Assets applicable to 756,128,409 outstanding
$.001 par value shares** $7,764,594
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $10.27
===================================================================================================================================
Institutional Shares--Net Assets applicable to 242,803,421 outstanding
$.001 par value shares** $2,493,431
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $10.27
===================================================================================================================================
**Unlimited Authorization.
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S GOVERNMENT AND AGENCY OBLIGATIONS (56.0%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (48.4%)
U.S. Treasury Bond 11.625% 11/15/2002 $26,125 $ 32,398
U.S. Treasury Bond 11.875% 11/15/2003 33,575 43,823
U.S. Treasury Note 5.375% 1/31/2000 1,000 1,007
U.S. Treasury Note 5.50% 2/29/2000 4,100 4,138
U.S. Treasury Note 5.625% 11/30/2000 9,225 9,398
U.S. Treasury Note 6.25% 5/31/2000-2/28/2002 75,625 78,502
U.S. Treasury Note 6.375% 1/15/2000-3/31/2001 9,100 9,322
U.S. Treasury Note 6.625% 6/30/2001-4/30/2002 32,135 34,018
U.S. Treasury Note 6.75% 4/30/2000 11,500 11,802
U.S. Treasury Note 7.125% 2/29/2000 8,500 8,732
U.S. Treasury Note 7.50% 11/15/2001-5/15/2002 34,520 37,374
U.S. Treasury Note 7.75% 1/31/2000 51,620 53,268
U.S. Treasury Note 7.875% 8/15/2001 10,700 11,548
U.S. Treasury Note 8.00% 5/15/2001 6,100 6,559
U.S. Treasury Note 8.75% 8/15/2000 1,200 1,276
-----------
343,165
-----------
AGENCY NOTES (7.6%)
Federal Farm Credit Bank 4.80% 11/6/2003 10,000 9,865
Federal Home Loan Bank 5.575% 9/2/2003 4,300 4,379
Federal Home Loan Bank 5.60% 9/2/2003 10,000 10,193
Federal Home Loan Bank 5.605% 3/3/2003 1,150 1,170
Federal Home Loan Bank 5.675% 8/18/2003 3,000 3,067
Federal Home Loan Bank 5.86% 4/28/2003 1,900 1,953
Federal National Mortgage Assn. 5.89% 11/6/2002 1,600 1,648
Federal National Mortgage Assn. 5.90% 7/9/2003 13,800 13,950
Federal National Mortgage Assn. 5.91% 8/25/2003 2,600 2,623
Federal National Mortgage Assn. 5.96% 4/23/2003 1,200 1,216
Federal National Mortgage Assn. 5.97% 7/3/2003 4,000 4,040
-----------
54,104
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $392,931) 397,269
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (39.0%)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (5.3%)
AT&T Universal Card Master Trust Series 5.95% 10/17/2002 (1) 2,250 2,277
Advanta Credit Card Master Trust 6.05% 8/1/2003 (1) 2,500 2,535
American Express Credit Card Master Trust 6.80% 12/15/2003 (1) 4,000 4,137
California Infrastructure & Econ Dev Bank SP Trust PG&E 6.16% 12/14/2000 (1) 1,250 1,272
Chase Manhattan Credit Card Master Trust 6.30% 8/15/2000 (1) 2,500 2,537
Discover Card Master Trust 5.40% 11/16/2001 (1) 1,313 1,314
First Bank Corp. Card Master Trust 6.40% 2/15/2003 (1) 1,000 1,034
Ford Credit Auto Owner Trust 5.90% 6/15/2002 (1) 6,000 6,093
Ford Credit Auto Loan Master Trust 6.50% 8/15/2002 (1) 2,250 2,287
Premier Auto Trust 5.69% 6/8/2002 (1) 3,500 3,530
Sears Credit Account Master Trust 5.80% 8/15/2005 (1) 3,000 3,036
Sears Credit Account Master Trust 8.10% 6/15/2004 (1) 2,500 2,575
Standard Credit Card Master Trust 6.80% 4/7/2001 (1) 650 653
Toyota Auto Lease Trust 5.35% 7/25/2002 (1) 4,075 4,073
Toyota Auto Lease Trust 6.35% 4/26/2004 (1) 550 558
-----------
37,911
-----------
FINANCE (19.6%)
American General Finance Corp. 5.875% 7/1/2000 450 452
American General Finance Corp. 7.45% 7/1/2002 425 447
American General Finance Corp. 8.00% 2/15/2000 1,000 1,025
Associates Corp. 6.25% 3/15/1999 500 501
Associates Corp. 6.375% 10/15/2002 2,000 2,060
Associates Corp. 6.50% 8/15/2002 1,150 1,188
Associates Corp. 6.50% 10/15/2002 1,250 1,293
Associates Corp. 6.68% 9/17/1999 2,200 2,219
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Associates Corp. 7.50% 4/15/2002 $ 1,400 $ 1,484
Associates Corp. 9.125% 4/1/2000 1,000 1,043
Banc One Corp. 6.25% 10/1/2001 2,000 2,042
BankAmerica Corp. 7.75% 7/15/2002 250 267
BankAmerica Corp. 7.875% 12/1/2002 1,500 1,619
BankAmerica Corp. 9.625% 2/13/2001 400 433
BankAmerica Corp. 10.00% 2/1/2003 700 808
Bear, Stearns & Co., Inc. 6.20% 3/30/2003 3,455 3,468
Bear, Stearns & Co., Inc. 7.625% 4/15/2000 750 766
CIT Group Inc. 5.35% 12/15/2000 5,000 4,985
The Chase Manhattan Corp. 7.75% 11/1/1999 135 137
The Chase Manhattan Corp. 8.625% 5/1/2002 1,000 1,088
The Chase Manhattan Corp. 10.00% 6/15/1999 2,400 2,448
Chemical Banking Corp. 7.25% 9/15/2002 1,500 1,582
Chrysler Financial Co. LLC 5.625% 1/15/1999 350 350
Chrysler Financial Co. LLC 6.375% 1/28/2000 1,000 1,010
Chrysler Financial Co. LLC 6.625% 8/15/2000 450 459
Chrysler Financial Corp. 5.25% 10/19/2000 5,000 4,993
Chrysler Financial Corp. 6.28% 6/21/1999 2,400 2,412
Comdisco Inc. 6.32% 11/27/2000 1,600 1,604
Citicorp 9.75% 8/1/1999 1,000 1,025
Countrywide Funding 8.25% 7/15/2002 250 265
Dean Witter, Discover & Co. 6.25% 3/15/2000 210 212
Donaldson, Lufkin & Jenrette 6.00% 12/1/2001 5,000 5,009
Equity Residential Properties 6.55% 11/15/2001 1,350 1,331
Finova Capital Corp. 5.875% 10/15/2001 1,750 1,746
First Chicago Corp. 7.625% 1/15/2003 600 639
First Chicago Corp. 8.25% 6/15/2002 1,345 1,456
First Chicago Corp. 9.875% 8/15/2000 150 160
First Chicago Corp. 10.25% 5/1/2001 250 276
First Fidelity Bancorp 9.625% 8/15/1999 800 820
First Interstate Bancorp 8.625% 4/1/1999 900 907
First Interstate Bancorp 10.875% 4/15/2001 250 279
First Union Corp. 8.00% 11/15/2002 2,000 2,165
First Union Corp. 8.125% 6/24/2002 1,600 1,727
Fleet Credit Card 6.82% 4/9/2001 2,700 2,781
Ford Motor Credit Co. 5.125% 10/15/2001 3,400 3,383
Ford Motor Credit Co. 7.00% 9/25/2001 600 624
Ford Motor Credit Co. 8.20% 2/15/2002 1,900 2,047
General Electric Capital Corp. 5.59% 4/10/2000 1,500 1,507
General Electric Capital Corp. 5.89% 5/15/2000 2,500 2,523
General Motors Acceptance Corp. 5.50% 12/15/2001 750 745
General Motors Acceptance Corp. 5.85% 4/6/2000 2,300 2,311
General Motors Acceptance Corp. 7.125% 6/1/1999 500 504
General Motors Acceptance Corp. 7.125% 5/1/2001 2,400 2,487
General Motors Acceptance Corp. 8.625% 6/15/1999 750 761
Great Western Finance 6.375% 7/1/2000 2,000 2,021
HRPT Properties Trust 6.75% 12/18/2002 1,250 1,225
Household Finance Corp. 7.625% 1/15/2003 2,000 2,131
International Lease Finance Corp. 6.20% 5/1/2000 3,000 3,022
International Lease Finance Corp. 6.30% 11/1/1999 2,000 2,019
International Lease Finance Corp. 6.31% 9/1/2000 1,020 1,034
Lehman Brothers Holdings Inc. 6.15% 3/15/2000 4,250 4,238
Lehman Brothers Holdings Inc. 6.90% 1/29/2001 2,000 2,018
Manufacturers Hanover Corp. 8.50% 2/15/1999 900 903
Mellon Financial Corp. 6.30% 6/1/2000 1,250 1,265
Mellon Financial Corp. 7.625% 11/15/1999 600 612
Merrill Lynch & Co., Inc. 5.87% 11/15/2001 1,600 1,616
Merrill Lynch & Co., Inc. 6.00% 1/15/2001 2,000 2,022
Merrill Lynch & Co., Inc. 6.07% 10/15/2001 2,300 2,335
Merrill Lynch & Co., Inc. 6.38% 7/18/2000 1,000 1,013
Merrill Lynch & Co., Inc. 6.50% 4/1/2001 1,500 1,532
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch & Co., Inc. 8.00% 2/1/2002 $ 400 $ 425
Morgan Stanley, Dean Witter, Discover & Co. 5.89% 3/20/2000 3,000 3,012
NationsBank Corp. 7.00% 9/15/2001 1,500 1,559
NationsBank Corp. 8.125% 6/15/2002 1,000 1,079
Norwest Financial, Inc. 6.75% 5/12/2000 3,000 3,053
Norwest Financial, Inc. 7.00% 1/15/2003 110 115
Norwest Financial, Inc. 7.875% 2/15/2002 2,000 2,133
Orion Capital Corp. 9.125% 9/1/2002 1,500 1,602
PaineWebber Group, Inc. 7.00% 3/1/2000 2,450 2,474
Republic New York Corp. 7.75% 5/15/2002 700 742
Salomon, Inc. 6.50% 3/1/2000 1,000 1,011
Salomon Smith Barney Holdings Inc. 5.50% 1/15/1999 500 500
Salomon Smith Barney Holdings Inc. 5.875% 2/1/2001 700 704
Salomon Smith Barney Holdings Inc. 7.98% 3/1/2000 1,000 1,025
Summit Properties Inc. 6.80% 8/15/2002 1,500 1,461
Toyota Motor Credit Corp. 5.50% 9/17/2001 2,500 2,511
Travelers Property Casualty Corp. 6.75% 4/15/2001 4,000 4,090
Wells Fargo & Co. 6.875% 5/10/2001 2,750 2,841
-----------
139,216
-----------
INDUSTRIAL (8.9%)
BP America, Inc. 9.375% 11/1/2000 1,004 1,074
Black & Decker Corp. 7.50% 4/1/2003 1,700 1,782
Continental Airlines P/T Trust 6.331% 10/15/2004 (1) 1,700 1,699
Cyprus Minerals Co. 10.125% 4/1/2002 1,500 1,635
Dayton Hudson Corp. 10.00% 12/1/2000 1,200 1,299
Dillard's Inc. 5.79% 11/15/2001 2,000 2,000
The Walt Disney Co. 6.375% 3/30/2001 1,000 1,025
First Data Corp. 6.625% 4/1/2003 4,200 4,346
Ford Capital BV 9.50% 7/1/2001 675 737
Ford Capital BV 9.875% 5/15/2002 1,520 1,710
Ford Holdings 9.25% 3/1/2000 1,000 1,039
General Motors Corp. 9.125% 7/15/2001 1,000 1,084
Illinois Central Railroad Co. 6.75% 5/15/2003 3,000 3,120
Johnson & Johnson 7.375% 6/29/2002 200 213
Kimberly-Clark 8.625% 5/1/2001 100 107
Lucent Technologies 6.90% 7/15/2001 1,000 1,041
McDonald's Corp. 6.75% 2/15/2003 450 458
Mobil Corp. 8.375% 2/12/2001 2,238 2,379
Monsanto Co. 5.375% 12/1/2001 5,000 4,993
Norfolk Southern Corp. 6.875% 5/1/2001 3,150 3,253
Occidental Petroleum Corp. 8.50% 11/9/2001 1,500 1,579
J.C. Penney & Co., Inc. 6.875% 6/15/1999 750 755
J.C. Penney & Co., Inc. 9.05% 3/1/2001 375 399
Phillips Petroleum Co. 9.00% 6/1/2001 1,500 1,617
Praxair, Inc. 6.25% 6/30/2000 1,250 1,257
Praxair, Inc. 6.70% 4/15/2001 4,000 4,056
Praxair, Inc. 6.75% 3/1/2003 1,250 1,275
Raytheon Co. 5.70% 11/1/2003 3,000 3,009
Raytheon Co. 6.30% 8/15/2000 1,750 1,772
Safeway Inc. 5.75% 11/15/2000 1,700 1,700
Safeway Inc. 5.875% 11/15/2001 750 750
Sears, Roebuck & Co. 6.50% 6/15/2000 1,500 1,520
Telecommunications Inc. 6.375% 5/1/2003 2,300 2,368
TCI Communications 7.375% 2/15/2000 1,365 1,392
Tenneco, Inc. 8.20% 11/15/1999 350 356
Texaco Capital Corp. 9.00% 12/15/1999 700 724
WMX Technologies Inc. 6.25% 10/15/2000 3,000 3,028
Xerox Corp. 8.125% 4/15/2002 150 162
-----------
62,713
-----------
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES (5.2%)
Alabama Power Co. 6.00% 3/1/2000 $ 1,050 $ 1,057
Baltimore Gas & Electric Co. 7.25% 7/1/2002 200 213
Coastal Corp. 8.125% 9/15/2002 1,700 1,821
Commonwealth Edison 7.375% 9/15/2002 1,450 1,537
Commonwealth Edison 7.375% 9/15/2002 1,500 1,608
Consolidated Edison Co. of New York, Inc. 6.625% 2/1/2002 500 516
Florida Power & Light Co. 6.625% 2/1/2003 210 212
National Rural Utility Co. 5.00% 10/1/2002 800 788
National Rural Utility Co. 6.75% 9/1/2001 2,500 2,584
New England Telephone & Telegraph Co. 8.625% 8/1/2001 3,000 3,241
Pacific Bell Telephone Co. 7.25% 7/1/2002 450 478
Pacific Gas & Electric Co. 6.25% 8/1/2003 1,000 1,031
Pacific Gas & Electric Co. 7.875% 3/1/2002 3,000 3,211
Penn Power & Light 6.00% 6/1/2000 1,000 1,009
Penn Power & Light 7.75% 5/1/2002 1,000 1,066
Public Service of Colorado 6.00% 1/1/2001 1,000 1,011
Southern California Edison Co. 6.75% 1/15/2000 2,600 2,636
Texas Utilities Co. 7.375% 8/1/2001 450 470
Texas Utilities Co. 8.125% 2/1/2002 600 644
U S WEST Capital Funding, Inc. 6.125% 7/15/2002 4,000 4,095
WorldCom Inc. 6.125% 8/15/2001 4,250 4,323
WorldCom Inc. 6.25% 8/15/2003 3,000 3,091
-----------
36,642
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $276,994) 276,482
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(3.2%)
- -----------------------------------------------------------------------------------------------------------------------------------
Asian Development Bank 9.125% 6/1/2000 700 735
Bayerische Landesbank 5.875% 4/7/2000 1,600 1,615
Canadian Imperial Bank of Commerce (NY Branch) 6.20% 8/1/2000 3,600 3,638
Grand Metropolitan Investment Corp. 8.625% 8/15/2001 1,000 1,074
Hanson Overseas 7.375% 1/15/2003 1,250 1,321
KFW International Finance, Inc. 9.125% 5/15/2001 400 434
Petro Geo-Services 6.25% 11/19/2003 3,000 2,969
Province of Manitoba 7.75% 2/1/2002 1,500 1,597
Province of Manitoba 8.75% 5/15/2001 1,000 1,075
Province of Manitoba 9.50% 10/1/2000 450 481
Province of Manitoba 9.625% 3/15/1999 500 504
National Westminster Bancorp Inc. 9.45% 5/1/2001 250 271
Noranda, Inc. 8.625% 7/15/2002 500 523
Province of Ontario 7.75% 6/4/2002 550 591
Province of Ontario 8.00% 10/17/2001 5,360 5,726
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $19,340) 22,554
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $368) 4.76% 1/4/1999 $ 368 $ 368
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.3%)
(COST $689,633) 696,673
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.7%)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 28,018
Liabilities--Note F (15,771)
-----------
12,247
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable to 70,217,105 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $708,920
===================================================================================================================================
NET ASSET VALUE PER SHARE $10.10
===================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $699,229 $ 9.96
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note D 2,651 .04
Unrealized Appreciation--Note E 7,040 .10
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $708,920 $10.10
===================================================================================================================================
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S GOVERNMENT AND AGENCY OBLIGATIONS (54.0%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (41.4%)
U.S. Treasury Bond 10.00% 5/15/2010 $ 12,765 $ 16,273
U.S. Treasury Bond 10.375% 11/15/2009-11/15/2012 284,290 374,926
U.S. Treasury Bond 10.75% 8/15/2005 22,490 29,992
U.S. Treasury Bond 12.75% 11/15/2010 7,125 10,345
U.S. Treasury Bond 13.25% 5/15/2014 400 662
U.S. Treasury Note 6.50% 10/15/2006 11,650 12,923
U.S. Treasury Note 7.25% 5/15/2004 420 471
U.S. Treasury Note 7.50% 2/15/2005 7,875 9,015
U.S. Treasury Note 7.875% 11/15/2004 1,150 1,332
-----------
455,939
-----------
AGENCY NOTES (12.6%)
Federal Home Loan Bank 5.575% 9/2/2003 6,500 6,619
Federal Home Loan Bank 5.80% 9/2/2008 16,700 17,220
Federal Home Loan Bank 5.865% 9/2/2008 10,000 10,360
Federal Home Loan Bank 5.88% 11/25/2008 5,000 5,005
Federal Home Loan Mortgage Corp. 6.785% 3/1/2006 4,500 4,511
Federal Home Loan Mortgage Corp. 7.09% 6/1/2005 3,000 3,071
Federal National Mortgage Assn. 5.64% 12/10/2008 10,380 10,276
Federal National Mortgage Assn. 5.80% 12/10/2003 900 925
Federal National Mortgage Assn. 6.19% 7/7/2008 4,325 4,403
Federal National Mortgage Assn. 6.52% 3/5/2008 19,075 19,440
Federal National Mortgage Assn. 6.57% 8/22/2007 10,000 10,840
Federal National Mortgage Assn. 6.58% 8/20/2007 28,000 30,370
Federal National Mortgage Assn. 6.59% 9/17/2007 7,000 7,601
Federal National Mortgage Assn. 6.65% 11/14/2007 5,445 5,635
Federal National Mortgage Assn. 7.55% 6/10/2004 2,900 2,928
-----------
139,204
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $574,721) 595,143
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (38.5%)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (2.2%)
California Infrastructure & Econ Dev Bank SP Trust PG&E 6.42% 3/25/2005 (1) 2,400 2,533
California Infrastructure & Econ Dev Bank SP Trust PG&E 6.38% 9/25/2008 (1) 5,500 5,792
Ford Credit Auto Owner Trust 5.90% 6/15/2002 (1) 3,000 3,047
Premier Auto Trust 5.69% 6/8/2002 (1) 3,100 3,127
Sears Credit Account Master Trust 5.80% 8/15/2001 (1) 4,000 4,047
Toyota Auto Lease Trust 5.35% 7/25/2002 (1) 5,400 5,397
Toyota Auto Lease Trust 6.35% 3/25/1999 (1) 700 710
-----------
24,653
-----------
FINANCE (14.2%)
Associates Corp. 7.75% 2/15/2005 4,300 4,752
BankAmerica Corp. 6.20% 2/15/2006 1,600 1,634
BankAmerica Corp. 7.125% 5/1/2006 1,750 1,889
BankAmerica Corp. 7.625% 6/15/2004 450 488
Bear, Stearns & Co., Inc. 6.625% 1/15/2004 350 357
Bear, Stearns & Co., Inc. 6.75% 12/15/2007 3,000 3,078
Bradley Operating LP 7.00% 11/15/2004 2,000 1,913
CIT Group Holdings 5.875% 10/15/2008 1,300 1,296
CIT Group Holdings 6.625% 6/15/2005 350 364
CNA Financial Corp. 6.45% 1/15/2008 3,000 2,947
CNA Financial Corp. 6.50% 4/15/2005 2,000 1,991
Camden Property Trust 7.00% 11/15/2006 2,000 1,889
The Chase Manhattan Corp. 6.00% 11/1/2005 5,000 5,037
The Chase Manhattan Corp. 6.375% 2/15/2008 5,040 5,202
Citicorp 7.125% 6/1/2003 135 142
Commercial Credit Corp. 5.90% 9/1/2003 450 454
Commercial Credit Corp. 7.875% 7/15/2004 2,000 2,193
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CoreStates Capital Corp. 6.625% 3/15/2005 $ 2,400 $ 2,500
CoreStates Capital Corp. 9.375% 4/15/2003 500 568
Dean Witter Discover & Co. 6.875% 3/1/2003 400 415
Equitable Companies Inc. 6.50% 4/1/2008 2,000 2,061
First Chicago Corp. 6.375% 1/30/2009 5,000 5,193
Fleet Financial Group, Inc. 6.875% 3/1/2003 600 623
Fleet Financial Group, Inc. 7.125% 4/15/2006 1,300 1,402
Fleet/Norstar Group 8.125% 7/1/2004 900 995
Ford Motor Credit Co. 6.625% 6/30/2003 3,000 3,120
Ford Motor Credit Co. 6.75% 5/15/2005 115 122
General Electric Capital Corp. 8.85% 3/1/2007 5,000 6,102
General Motor Acceptance Corp. 6.125% 1/22/2008 5,000 5,126
General Motor Acceptance Corp. 6.60% 1/17/2001 100 102
Household Finance Corp. 7.65% 5/15/2007 1,000 1,110
JDN Realty Corp. 6.80% 8/1/2004 2,310 2,212
Lehman Brothers Holdings Inc. 7.20% 8/15/2009 8,000 8,292
Liberty Financial Cos., Inc. 6.75% 11/15/2008 3,000 3,095
Mellon Bank Corp. 6.50% 8/1/2005 3,000 3,110
Mellon Bank Corp. 6.75% 6/1/2003 225 234
Merrill Lynch & Co. 6.55% 8/1/2004 100 104
Morgan Stanley, Dean Witter Discover & Co. 6.875% 3/1/2007 3,000 3,165
NCNB Corp. 9.50% 6/1/2004 2,000 2,349
NAC Re Corp. 7.15% 11/15/2005 2,500 2,600
NationsBank Corp. 6.50% 3/15/2006 5,900 6,146
NationsBank Corp. 6.875% 2/15/2005 420 441
NationsBank Corp. 6.95% 3/20/2006 3,000 3,190
NationsBank Corp. 7.75% 8/15/2004 500 546
Orion Capital Corp. 7.25% 7/15/2005 800 802
PaineWebber Group, Inc. 7.875% 2/15/2003 250 262
Prudential Insurance Co. of America 6.375% 7/23/2006 2,000 2,050
Realty Income Corp. 7.75% 5/6/2007 2,000 1,951
Republic New York Corp. 7.75% 5/15/2009 2,400 2,718
Salomon Smith Barney Holdings Inc. 6.875% 6/15/2005 3,300 3,445
Sears, Roebuck & Co. Acceptance Corp. 6.125% 1/15/2006 150 151
Sears, Roebuck & Co. Acceptance Corp. 6.25% 1/15/2004 650 665
Sears, Roebuck & Co. Acceptance Corp. 6.75% 9/15/2005 3,000 3,128
Shurgard Storage Centers, Inc. 7.50% 4/25/2004 3,000 2,976
Simon DeBartolo Group, Inc. 6.75% 7/15/2004 4,000 3,927
Summit Properties Inc. 7.20% 8/15/2007 3,450 3,330
SunTrust Banks, Inc. 6.25% 6/1/2008 3,000 3,105
SunTrust Banks, Inc. 7.375% 7/1/2006 2,400 2,643
Susa Partnership LP 7.00% 12/1/2007 3,000 2,901
USF&G Corp. 7.125% 6/1/2005 2,400 2,549
U.S. Bank N.A. 5.70% 12/15/2008 2,000 1,988
U.S. Bank N.A. 6.30% 7/15/2008 5,000 5,188
United Dominion Realty Trust, Inc. 7.25% 1/15/2007 2,500 2,361
Wachovia Corp. 5.625% 1/15/2009 2,000 1,987
Wachovia Corp. 6.25% 8/4/2008 5,000 5,196
Wells Fargo & Co. 6.875% 4/1/2006 3,000 3,195
-----------
157,067
-----------
INDUSTRIAL (15.3%)
Air Products & Chemicals, Inc. 6.25% 6/15/2003 125 127
Allied Signal Inc. 6.20% 2/1/2008 3,700 3,748
Anheuser-Busch Cos., Inc. 7.10% 6/15/2007 3,400 3,724
Applied Materials, Inc. 8.00% 9/1/2004 150 163
Archer-Daniels-Midland Co. 6.25% 5/15/2003 250 257
C.R. Bard, Inc. 6.70% 12/1/2026 2,300 2,457
Black & Decker Corp. 7.50% 4/1/2003 6,500 6,812
Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 3,000 3,107
Burlington Northern Santa Fe Corp. 9.25% 10/1/2006 1,000 1,208
CSX Corp. 9.00% 8/15/2006 300 354
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Caterpillar, Inc. 9.00% 4/15/2006 $ 600 $ 714
Caterpillar, Inc. 9.375% 8/15/2011 1,550 1,990
Comcast Cablevision 8.125% 5/1/2004 3,500 3,862
Comcast Cablevision 8.375% 5/1/2007 4,500 5,204
Continental Airlines P/T Trust 6.41% 10/15/2008 (1) 1,750 1,784
Continental Airlines, Inc (Equipment Trust Certificates) 6.648% 3/15/2019 2,400 2,485
Delta Airlines, Inc. (Equipment Trust Certificates) 8.54% 1/2/2007 (1) 474 518
Dillards Inc. 6.625% 11/15/2008 3,000 3,079
Eastman Chemical Co. 6.375% 1/15/2004 5,075 5,059
Federated Department Stores, Inc. 8.50% 6/15/2003 4,000 4,385
First Data Corp. 6.625% 4/1/2003 2,600 2,690
First Data Corp. 6.375% 12/15/2007 3,500 3,611
General Motors Corp. 7.00% 6/15/2003 500 528
International Business Machines Corp. 6.45% 8/1/2007 4,000 4,296
International Paper Co. 7.875% 8/1/2006 35 38
Kroger Co. 6.375% 3/1/2008 470 477
Kroger Co. 7.65% 4/15/2007 530 580
Kroger Co. 8.15% 7/15/2006 3,800 4,231
Lafarge Corp. 6.375% 7/15/2005 4,500 4,605
Lockheed Martin Corp. 6.50% 4/15/2003 2,000 2,057
Lockheed Martin Corp. 7.70% 6/15/2008 3,300 3,722
Monsanto Co. 5.75% 12/1/2005 6,000 5,984
News America Holdings Inc. 8.50% 2/15/2005 2,400 2,678
Norfolk & Southern Corp. 7.40% 9/15/2006 4,545 4,987
Northrop Grumman Corp. 7.00% 3/1/2006 3,500 3,649
Occidental Petroleum Corp. 8.50% 9/15/2004 3,000 3,055
J.C. Penney & Co., Inc. 6.125% 11/15/2003 130 132
Philip Morris Cos., Inc. 7.00% 7/15/2005 2,200 2,344
Philip Morris Cos., Inc. 8.25% 10/15/2003 250 276
Praxair, Inc. 6.90% 11/1/2006 3,900 3,994
Raytheon Co. 6.15% 11/1/2008 7,500 7,676
Safeway Inc. 6.50% 11/15/2008 2,500 2,590
Safeway Inc. 6.85% 9/15/2004 3,500 3,625
Telecommunications Inc. 6.375% 5/1/2003 7,150 7,362
TCI Communications Senior Notes 7.25% 8/1/2005 5,685 6,165
Texaco Capital Inc. 5.70% 12/1/2008 5,000 5,059
Texas Instruments Inc. 6.125% 2/1/2006 3,100 3,192
Time Warner Inc. 7.48% 1/15/2008 2,050 2,272
Time Warner Inc. 7.75% 6/15/2005 6,500 7,216
Time Warner Inc. 8.18% 8/15/2007 2,250 2,602
Tosco Corp. 7.25% 1/1/2007 3,000 3,127
USA Waste Services 7.125% 10/1/2007 2,500 2,678
Union Carbide Corp. 6.75% 4/1/2003 3,050 3,078
Union Oil of California 6.375% 2/1/2004 2,000 1,998
Union Pacific Corp. 6.125% 1/15/2004 1,000 993
Union Pacific Corp. 7.60% 5/1/2005 3,200 3,452
Whirlpool Corp. 9.00% 3/1/2003 400 445
----------
168,501
----------
UTILITIES (6.8%)
Ameritech Capital Funding 6.15% 1/15/2008 6,000 6,322
Cincinnati Gas & Electric Co. 6.45% 2/15/2004 1,000 1,044
Enron Corp. 6.875% 10/15/2007 1,500 1,561
Enron Corp. 7.125% 5/15/2007 2,546 2,687
Enron Corp. 7.625% 9/10/2004 1,000 1,076
Enron Corp. 9.125% 4/1/2003 2,000 2,215
GTE Northwest Inc. 5.55% 10/15/2008 3,000 3,008
GTE South Inc. 6.125% 6/15/2007 2,000 2,082
HNG Internorth 9.625% 3/15/2006 2,000 2,378
MCI Communications Corp. 6.50% 4/15/2010 2,150 2,253
MCI Communications Corp. 7.50% 8/20/2004 3,250 3,542
National Rural Utility Co. 6.20% 2/1/2008 4,000 4,188
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National Rural Utility Co. 6.42% 5/1/2008 $ 3,000 $ 3,163
New York Telephone Co. 6.125% 1/15/2010 5,500 5,753
Pacific Bell Telephone Co. 7.00% 7/15/2004 3,175 3,438
PP&L Resources Inc. 6.55% 3/1/2006 1,325 1,395
Southern California Edison Co. 6.375% 1/15/2006 3,000 3,149
Southwestern Bell Telephone Co. 5.75% 9/1/2004 2,000 1,998
Southwestern Bell Telephone Co. 6.625% 7/15/2007 6,000 6,492
Texas Utilities Co. 8.25% 4/1/2004 4,900 5,399
Texas Utilities Electric Co. 7.17% 8/1/2007 3,500 3,829
Union Electric Power Co. 7.65% 7/15/2003 3,000 3,269
Virginia Electric & Power Co. 6.625% 4/1/2003 4,000 4,188
----------
74,429
----------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $413,376) 424,650
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(6.6%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank of Nova Scotia 6.875% 5/1/2003 750 778
Province of British Columbia 5.375% 10/29/2008 7,000 6,954
Embotelladora Andina SA 7.875% 10/1/2097 1,000 737
Falconbridge Ltd. 7.35% 11/1/2006 1,000 982
Finland Global Bond 7.875% 7/28/2004 3,500 3,918
Grand Metropolitan Investment Corp. 9.00% 8/15/2011 3,000 3,754
KFW International Finance, Inc. 7.625% 2/15/2004 4,625 5,100
Province of Manitoba 6.125% 1/19/2004 8,000 8,281
National Australia Bank 6.60% 12/10/2007 4,100 4,271
National Westminster Bancorp Inc. 9.375% 11/15/2003 1,150 1,319
New Zealand Government 8.75% 12/15/2006 325 393
New Zealand Government 10.625% 11/15/2005 600 778
Noranda Inc. 7.00% 7/15/2005 3,000 2,933
Noranda Inc. 8.125% 6/15/2004 1,000 1,043
Noranda Forest 7.50% 7/15/2003 1,000 1,021
Province of Ontario 7.625% 6/22/2004 5,000 5,515
Petro Geo-Services 6.625% 3/30/2008 5,325 5,222
Petro Geo-Services 7.50% 3/31/2007 1,500 1,558
Republic of Portugal 5.75% 10/8/2003 4,700 4,818
Province of Saskatchewan 6.625% 7/15/2003 4,500 4,728
Province of Saskatchewan 7.125% 3/15/2008 500 552
Province of Saskatchewan 8.00% 7/15/2004 3,900 4,376
Toronto-Dominion Bank 6.50% 8/15/2008 3,000 3,118
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $67,779) 72,149
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.2%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 4.76% 1/4/1999 $ 2,109 $ 2,109
Collateralized by U.S. Government Obligations in a
Pooled Cash Account--Note F 4.77% 1/4/1999 443 443
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $2,552) 2,552
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.3%)
(COST $1,058,428) 1,094,494
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.7%)
Other Assets--Note B 19,616
Liabilities--Note F (11,694)
-----------
7,922
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable to 105,142,889 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $1,102,416
===================================================================================================================================
NET ASSET VALUE PER SHARE $10.48
===================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,062,249 $10.10
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note D 4,101 .04
Unrealized Appreciation--Note E 36,066 .34
===================================================================================================================================
NET ASSETS $1,102,416 $10.48
===================================================================================================================================
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S GOVERNMENT AND AGENCY OBLIGATIONS (62.3%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (59.8%)
U.S. Treasury Bond 8.00% 11/15/2021 $19,295 $ 25,814
U.S. Treasury Bond 8.125% 8/15/2019-8/15/2021 58,600 78,849
U.S. Treasury Bond 8.50% 2/15/2020 320 444
U.S. Treasury Bond 8.75% 5/15/2017 340 473
U.S. Treasury Bond 8.875% 8/15/2017-2/15/2019 3,500 4,960
U.S. Treasury Bond 10.375% 11/15/2009-11/15/2012 8,525 11,386
U.S. Treasury Bond 12.75% 11/15/2010 1,200 1,742
U.S. Treasury Bond 13.25% 5/15/2014 525 869
U.S. Treasury Note 6.25% 1/31/2002 250 261
U.S. Treasury Note 7.50% 11/15/2001-5/15/2002 650 702
-----------
125,500
-----------
AGENCY NOTES (2.5%)
Federal National Mortgage Assn. 5.83% 11/26/2027 1,000 1,001
Federal National Mortgage Assn. 6.08% 9/1/2028 3,000 3,110
Tennessee Valley Authority 6.25% 12/15/2017 1,100 1,164
-----------
5,275
-----------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $121,934) 130,775
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (31.2%)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (0.8%)
Premier Auto Trust 5.69% 6/8/2002 400 403
Sears Credit Account Master Trust 5.80% 8/15/2005 (1) 500 506
Toyota Auto Lease Trust 5.35% 7/25/2002 700 700
-----------
1,609
-----------
FINANCE (7.7%)
Bank of New York Capital I 7.97% 12/31/2026 375 417
BankAmerica Capital II 8.00% 12/15/2026 400 447
BT Capital Trust B 7.90% 1/15/2027 200 209
CIGNA Corp. 7.875% 5/15/2027 175 189
CIGNA Corp. 8.30% 1/15/2023 500 570
Chase Capital I 7.67% 12/1/2026 400 428
Chemical Bank Corp. 6.125% 11/1/2008 500 509
Chrysler Financial Corp. 5.25% 10/19/2000 500 499
Citicorp Capital II 8.015% 2/15/2027 450 500
Dean Witter, Discover & Co. 6.75% 10/15/2013 200 207
Equitable Companies Inc. 7.00% 4/1/2028 200 206
First Chicago Corp. 9.875% 7/1/1999 600 613
Fleet Capital Trust II 7.92% 12/11/2026 400 440
Ford Motor Credit Co. 5.125% 10/15/2001 500 498
General Electric Capital Corp. 6.90% 9/15/2015 1,000 1,101
Household Finance Corp. 6.45% 2/1/2009 70 72
International Lease Finance Corp. 6.30% 11/1/1999 600 606
Lehman Brothers Holdings Inc. 7.20% 8/15/2009 835 866
Liberty Financial 6.75% 11/15/2008 1,000 1,032
Mellon Capital II 7.995% 1/15/2027 450 502
Merrill Lynch & Co. 6.875% 11/15/2018 1,250 1,289
NationsBank Corp. 7.25% 10/15/2025 375 406
Norwest Corp. 6.65% 10/15/2023 60 61
Sears, Roebuck & Co. Acceptance Corp. 9.375% 11/1/2011 395 502
Security Capital Pacific Trust 8.05% 4/1/2017 200 196
Spieker Properties Inc. 7.50% 10/1/2027 300 274
Summit Properties Inc. 7.20% 8/15/2007 550 531
Suntrust Capital 7.90% 6/15/2027 750 824
Susa Partnership 7.50% 12/1/2027 400 360
Travelers Property Casualty Corp. 7.75% 4/15/2026 275 308
US Bancorp 8.27% 12/15/2026 750 857
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United Dominion Realty Trust, Inc. 7.25% 1/15/2007 $ 300 $ 283
Wells Fargo Capital I 7.96% 12/15/2026 400 445
-----------
16,247
-----------
INDUSTRIAL (14.9%)
American Stores Co. 8.00% 6/1/2026 400 471
Anheuser-Busch Cos. Inc. 6.75% 12/15/2027 250 271
Anheuser-Busch Cos., Inc. 7.125% 7/1/2017 600 641
Archer-Daniels-Midland Co. 8.875% 4/15/2011 80 102
Auburn Hills 12.00% 5/1/2020 260 440
C.R. Bard, Inc. 6.70% 12/1/2026 500 534
Bayer Corp. 6.65% 2/15/2028 500 517
The Boeing Co. 6.625% 2/15/2038 700 703
Burlington Northern Santa Fe Corp. 6.875% 2/15/2016 300 315
Burlington Northern Santa Fe Corp. 7.00% 12/15/2025 800 852
Burlington Northern Sante Fe Corp. 7.25% 8/1/2097 150 160
CSX Corp. 6.80% 12/1/2028 1,000 1,008
CSX Corp. 8.625% 5/15/2022 25 30
Caterpillar, Inc. 7.375% 3/1/2097 50 54
Caterpillar, Inc. 9.375% 8/15/2011 450 578
Chrysler Corp. 7.45% 2/1/2097 225 256
Comcast Cablevision 8.875% 5/1/2017 500 623
Continental Airlines, Inc. (Equipment Trust Certificates) 6.648% 3/15/2019 470 487
Dayton Hudson Corp. 6.65% 8/1/2028 500 512
Dayton Hudson Corp. 6.75% 1/1/2028 750 778
Deere & Co. 8.50% 1/9/2022 115 142
Dillard's Inc. 7.75% 5/15/2027 750 820
The Walt Disney Co. 7.55% 7/15/2093 625 732
Eastman Chemical Co. 7.25% 1/15/2024 250 246
Eastman Chemical Co. 7.60% 2/1/2027 150 152
Federated Department Stores, Inc. 7.00% 2/15/2028 400 413
Federated Department Stores, Inc. 7.45% 7/15/2017 475 516
Ford Capital BV 9.50% 6/1/2010 180 230
Ford Motor Co. 8.90% 1/15/2032 1,000 1,326
Ford Motor Co. 9.98% 2/15/2032 100 149
International Business Machines Corp. 6.50% 1/15/2028 350 370
International Business Machines Corp. 7.125% 12/1/2096 500 557
Lockheed Martin Corp. 7.70% 6/15/2008 500 564
Lucent Technologies, Inc. 6.50% 1/15/2028 500 529
May Department Stores Co. 9.75% 2/15/2021 40 55
Mobil Corp. 7.625% 2/23/2033 230 245
Monsanto Co. 6.60% 12/1/2028 1,000 1,005
News America Holdings Inc. 8.00% 10/17/2016 750 832
Norfolk Southern Corp. 7.70% 5/15/2017 400 454
Norfolk Southern Corp. 7.80% 5/15/2027 325 378
Norfolk Southern Corp. 7.90% 5/15/2097 100 118
Northrop Grumman Corp. 9.375% 10/15/2024 400 463
J.C. Penney & Co., Inc. 7.125% 11/15/2023 220 226
Phillips Petroleum Co. 8.49% 1/1/2023 900 978
Raytheon Co. 6.75% 3/15/2018 800 827
Raytheon Co. 7.00% 11/1/2028 400 423
Rohm & Haas Co. 9.80% 4/15/2020 550 716
Tele-Communications, Inc. 9.875% 6/15/2022 500 705
TCI Communications 7.875% 8/1/2013 1,000 1,168
Texaco Capital Corp. 8.875% 9/1/2021 155 201
Time Warner Inc. 7.57% 2/1/2024 500 560
Time Warner Entertainment 8.375% 3/15/2023 1,650 2,015
Tosco Corp. 7.80% 1/1/2027 350 369
USA Waste Services Inc. 7.00% 7/15/2028 300 306
USA Waste Services Inc. 7.125% 12/15/2017 900 937
Union Carbide Corp. 7.75% 10/1/2096 150 147
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Union Carbide Corp. 7.875% 4/1/2023 220 231
Union Pacific Corp. 7.00% 2/1/2016 550 551
Union Pacific Corp. 8.625% 5/15/2022 35 38
United Technologies Corp. 6.70% 8/1/2028 500 533
United Technologies Corp. 8.875% 11/15/2019 545 717
Whirlpool Corp. 9.10% 2/1/2008 60 73
-----------
31,349
-----------
UTILITIES (7.8%)
AT&T Corp. 8.35% 1/15/2025 300 344
Arizona Public Service Co. 7.25% 8/1/2023 200 208
Coastal Corp. 7.42% 2/15/2037 200 206
Coastal Corp. 7.75% 10/15/2035 400 429
Coastal Corp. 9.625% 5/15/2012 300 385
Commonwealth Edison 7.50% 7/1/2013 750 845
GTE Corp. 8.75% 11/1/2021 900 1,153
Illinois Power Co. 7.50% 7/15/2025 300 303
MCI Communications Corp. 6.50% 4/15/2010 625 655
MCI Communications Corp. 7.75% 3/23/2025 250 263
Michigan Bell Telephone Co. 7.50% 2/15/2023 1,040 1,114
National Rural Utility Co. 6.20% 2/1/2008 850 890
New England Telephone & Telegraph Co. 6.875% 10/1/2023 110 112
New England Telephone & Telegraph Co. 7.875% 11/15/2029 600 738
New England Telephone & Telegraph Co. 9.00% 8/1/2031 250 283
New York Telephone Co. 6.125% 1/15/2010 1,000 1,046
Pacific Gas & Electric Co. 8.25% 11/1/2022 1,000 1,108
Southern California Edison Co. 6.75% 1/15/2000 500 507
Southwestern Bell Telephone Co. 7.25% 7/15/2025 450 472
Southwestern Bell Telephone Co. 7.625% 3/1/2023 45 49
Sprint Capital Corp. 6.875% 11/15/2028 1,250 1,300
Texas Utilities Co. 7.875% 3/1/2023 1,090 1,155
Texas Utilities Co. 8.75% 11/1/2023 50 55
Union Electric Power Co. 6.75% 5/1/2008 120 131
U S WEST Communications Inc. 7.25% 9/15/2025 1,000 1,116
Virginia Electric & Power Co. 6.75% 10/1/2023 1,000 989
Wisconsin Electric Power Co. 7.70% 12/15/2027 75 81
WorldCom Inc. 6.95% 8/15/2028 500 538
-----------
16,475
-----------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $65,447) 65,680
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(4.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian National Railway Co. 6.80% 7/15/2018 725 738
Canadian National Railway Co. 6.90% 7/15/2028 400 411
Embotelladora Andina SA 7.875% 10/1/2097 300 221
Grand Metropolitan Investment Corp. 9.00% 8/15/2011 75 94
Inter-American Development Bank 7.125% 3/15/2023 25 27
Inter-American Development Bank 8.50% 3/15/2011 110 139
International Bank for Reconstruction & Development 9.25% 7/15/2017 135 186
KFW International Finance, Inc. 7.20% 3/15/2014 600 687
Province of Manitoba 9.125% 1/15/2018 400 535
Province of Manitoba 9.25% 4/1/2020 485 665
Province of New Brunswick 8.75% 5/1/2022 800 1,051
Province of New Brunswick 9.75% 5/15/2020 500 709
Province of Newfoundland 9.00% 6/1/2019 300 386
Province of Newfoundland 10.00% 12/1/2020 750 1,059
Northern Telecom Ltd. 6.875% 9/1/2023 250 253
Petro-Canada 9.25% 10/15/2021 300 373
Petro Geo-Services 7.125% 3/30/2028 625 588
Province of Saskatchewan 7.125% 3/15/2008 100 110
Province of Saskatchewan 7.375% 7/15/2013 600 698
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM BOND INDEX FUND COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swiss Bank Corp.-New York 7.00% 10/15/2015 $ 750 $ 773
Swiss Bank Corp.-New York 7.375% 6/15/2017 300 322
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $7,129) 10,025
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.5%)
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $1,050) 4.76% 1/4/1999 1,050 1,050
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.8%)
(COST $195,560) 207,530
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.2%)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 4,687
Liabilities (2,192)
---------
2,495
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------------------------------------------
Applicable to 18,546,919 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $210,025
====================================================================================================================================
NET ASSET VALUE PER SHARE $11.32
====================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $197,621 $10.65
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note D 434 .02
Unrealized Appreciation--Note E 11,970 .65
====================================================================================================================================
NET ASSETS $210,025 $11.32
====================================================================================================================================
</TABLE>
44
<PAGE> 47
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to each class of its shares. These
expenses directly reduce the amount of investment income available to pay to
shareholders as income dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and any Unrealized Appreciation
(Depreciation) on investments during the period.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL BOND SHORT-TERM INTERMEDIATE- LONG-TERM
MARKET INDEX BOND INDEX TERM BOND INDEX BOND INDEX
FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $517,286 $33,737 $57,371 $ 8,975
Security Lending Income 246 23 88 --
-------------------------------------------------------------------------------
Total Income 517,532 33,760 57,459 8,975
-------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 984 69 106 16
Management and Administrative 3,461 582 951 4
Shareholder Account Maintenance(1) 7,387 296 460 203
Marketing and Distribution(1) 2,260 168 242 33
Taxes (other than income taxes) 227 15 24 4
Custodian Fees 238 23 14 19
Auditing Fees 13 8 8 8
Shareholders' Reports1 186 9 15 7
Annual Meeting and Proxy Costs(1) 17 1 2 1
Trustees' Fees and Expenses 14 1 1 --
-------------------------------------------------------------------------------
Total Expenses 14,787 1,172 1,823 295
Expenses Paid Indirectly--Note C (18) (2) (4) (2)
-------------------------------------------------------------------------------
Net Expenses 14,769 1,170 1,819 293
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 502,763 32,590 55,640 8,682
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT
SECURITIES SOLD 65,401 6,344 15,703 1,152
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES 101,026 2,874 14,878 6,379
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $669,190 $41,808 $86,221 $16,213
==================================================================================================================================
</TABLE>
(1)Expenses of the Total Bond Market Index Fund by class of shares are:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(000)
-----------------------------------------------------
INVESTOR INSTITUTIONAL
SHARES SHARES TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class-Specific Expenses:
Shareholder Account Maintenance $ 7,194 $ 193 $ 7,387
Marketing and Distribution 1,699 561 2,260
Shareholders' Reports 186 -- 186
Annual Meeting and Proxy Costs 17 -- 17
- ----------------------------------------------------------------------------------------------------------------------------------
Total Class-Specific Expenses 9,096 754 9,850
All Other Portfolio Expenses 3,786 1,133 4,919
- ----------------------------------------------------------------------------------------------------------------------------------
Total Expenses $12,882 $1,887 $14,769
==================================================================================================================================
</TABLE>
See Note C in Notes to Financial Statements.
45
<PAGE> 48
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund distributes its
income to shareholders each day, the amounts of Distributions--Net Investment
Income generally equal the net income earned as shown under the Operations
section. The amounts of Distributions--Realized Capital Gain may not match the
capital gains shown in the Operations section, because distributions are
determined on a tax basis and may be made in a period different from the one in
which the gains were realized on the financial statements. The Capital Share
Transactions section shows the amount shareholders invested in the fund, either
by purchasing shares or by reinvesting distributions, and the amounts redeemed.
The corresponding numbers of Shares Issued and Redeemed are shown at the end of
the Statement. Distributions, Capital Share Transactions, and Shares Issued and
Redeemed are shown separately for each class of shares.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TOTAL BOND MARKET INDEX FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997
(000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 502,763 $ 356,159
Realized Net Gain (Loss) 65,401 425
Change in Unrealized Appreciation (Depreciation) 101,026 161,978
-----------------------------------
Net Increase in Net Assets Resulting from Operations 669,190 518,562
-----------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (385,446) (270,877)
Institutional Shares (117,317) (85,282)
Realized Capital Gain
Investor Shares (28,406) --
Institutional Shares (8,371) --
-----------------------------------
Total Distributions (539,540) (356,159)
-----------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 3,417,802 2,673,249
Issued in Lieu of Cash Distributions 373,724 239,069
Redeemed (1,255,551) (867,035)
-----------------------------------
Net Increase--Investor Shares 2,535,975 2,045,283
-----------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(2)
Issued 1,101,619 802,671
Issued in Lieu of Cash Distributions 105,038 73,511
Redeemed (371,701) (311,860)
-----------------------------------
Net Increase--Institutional Shares 834,956 564,322
- ----------------------------------------------------------------------------------------------------------------------
Total Increase 3,500,581 2,772,008
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 6,757,444 3,985,436
-----------------------------------
End of Year $10,258,025 $6,757,444
======================================================================================================================
(1)Shares Issued (Redeemed)--Investor Shares
Issued 334,291 270,831
Issued in Lieu of Cash Distributions 36,562 24,183
Redeemed (122,914) (87,926)
-----------------------------------
Net Increase in Shares Outstanding 247,939 207,088
======================================================================================================================
(2)Shares Issued (Redeemed)--Institutional Shares
Issued 107,590 81,271
Issued in Lieu of Cash Distributions 10,275 7,435
Redeemed (36,368) (31,495)
-----------------------------------
Net Increase in Shares Outstanding 81,497 57,211
=========================================================================================================================
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INTERMEDIATE-TERM
BOND INDEX FUND BOND INDEX FUND
--------------------------------- -------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 32,590 $ 25,629 $ 55,640 $ 37,752
Realized Net Gain (Loss) 6,344 1,429 15,703 (80)
Change in Unrealized Appreciation
(Depreciation) 2,874 3,076 14,878 15,797
-----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 41,808 30,134 86,221 53,469
-----------------------------------------------------------------------------
Distributions
Net Investment Income (32,590) (25,629) (55,640) (37,752)
Realized Capital Gain (4,414) -- (7,583) --
-----------------------------------------------------------------------------
Total Distributions (37,004) (25,629) (63,223) (37,752)
-----------------------------------------------------------------------------
Capital Share Transactions(1)
Issued 374,881 264,067 527,923 299,703
Issued in Lieu of Cash Distributions 31,908 21,565 52,764 30,780
Redeemed (148,942) (172,160) (187,851) (119,977)
-----------------------------------------------------------------------------
Net Increase from Capital
Share Transactions 257,847 113,472 392,836 210,506
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase 262,651 117,977 415,834 226,223
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of Year 446,269 328,292 686,582 460,359
-----------------------------------------------------------------------------
End of Year $708,920 $446,269 $1,102,416 $686,582
=================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 37,200 26,634 50,863 30,030
Issued in Lieu of Cash Distributions 3,165 2,171 5,067 3,083
Redeemed (14,760) (17,286) (18,083) (12,023)
-----------------------------------------------------------------------------
Net Increase in Shares Outstanding 25,605 11,519 37,847 21,090
=================================================================================================================================
</TABLE>
47
<PAGE> 50
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
LONG-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 8,682 $ 3,886
Realized Net Gain (Loss) 1,152 565
Change in Unrealized Appreciation (Depreciation) 6,379 4,404
------------------------------------
Net Increase in Net Assets Resulting from Operations 16,213 8,855
------------------------------------
DISTRIBUTIONS
Net Investment Income (8,682) (3,886)
Realized Capital Gain (810) --
------------------------------------
Total Distributions (9,492) (3,886)
------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 175,576 57,876
Issued in Lieu of Cash Distributions 8,099 3,143
Redeemed (68,323) (22,160)
------------------------------------
Net Increase from Capital Share Transactions 115,352 38,859
- ----------------------------------------------------------------------------------------------------------------
Total Increase 122,073 43,828
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 87,952 44,124
------------------------------------
End of Year $210,025 $87,952
================================================================================================================
(1)Shares Issued (Redeemed)
Issued 15,843 5,640
Issued in Lieu of Cash Distributions 727 307
Redeemed (6,180) (2,167)
------------------------------------
Net Increase in Shares Outstanding 10,390 3,780
================================================================================================================
</TABLE>
48
<PAGE> 51
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents
the Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL BOND MARKET INDEX FUND INVESTOR SHARES
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.09 $ 9.84 $10.14 $ 9.17 $10.06
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .624 .645 .640 .650 .622
Net Realized and Unrealized Gain (Loss)
on Investments .218 .250 (.300) .970 (.888)
----------------------------------------------------------------------
Total from Investment Operations .842 .895 .340 1.620 (.266)
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.624) (.645) (.640) (.650) (.622)
Distributions from Realized Capital Gains (.038) -- -- -- (.002)
----------------------------------------------------------------------
Total Distributions (.662) (.645) (.640) (.650) (.624)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.27 $10.09 $ 9.84 $10.14 $ 9.17
==================================================================================================================================
TOTAL RETURN* 8.58% 9.44% 3.58% 18.18% -2.66%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $7,765 $5,129 $2,962 $2,405 $1,731
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.18%
Ratio of Net Investment Income to Average Net Assets 6.10% 6.54% 6.54% 6.66% 6.57%
Portfolio Turnover Rate 57%** 39% 39% 36% 33%
==================================================================================================================================
</TABLE>
*Total return figures do not reflect the annual account maintenance fee of $10.
**Portfolio turnover rate excluding in-kind redemptions was 56%.
49
<PAGE> 52
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL BOND MARKET INDEX FUND INSTITUTIONAL SHARES
YEAR ENDED DECEMBER 31,
--------------------------------------- SEP. 18* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 DEC. 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $ 9.84 $10.14 $ 9.87
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .635 .655 .650 .174
Net Realized and Unrealized Gain (Loss) on Investments .218 .250 (.300) .270
--------------------------------------------------------
Total from Investment Operations .853 .905 .350 .444
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.635) (.655) (.650) (.174)
Distributions from Realized Capital Gains (.038) -- -- --
--------------------------------------------------------
Total Distributions (.673) (.655) (.650) (.174)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.27 $10.09 $ 9.84 $10.14
==================================================================================================================================
TOTAL RETURN 8.69% 9.55% 3.68% 4.53%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $2,493 $1,628 $1,024 $413
Ratio of Total Expenses to Average Net Assets 0.10% 0.10% 0.10% 0.10%**
Ratio of Net Investment Income to Average Net Assets 6.21% 6.64% 6.66% 6.48%**
Portfolio Turnover Rate 57%+ 39% 39% 36%
==================================================================================================================================
</TABLE>
*Inception.
**Annualized.
+Portfolio turnover rate excluding in-kind redemptions was 56%.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
--------------------------------------------------- MAR. 1* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 1995 DEC. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $ 9.92 $10.07 $ 9.50 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .574 .597 .587 .623 .463
Net Realized and Unrealized Gain (Loss) on Investments .168 .080 (.146) .570 (.500)
-------------------------------------------------------------------
Total from Investment Operations .742 .677 .441 1.193 (.037)
-------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.574) (.597) (.587) (.623) (.463)
Distributions from Realized Capital Gains (.068) -- (.004) -- --
-------------------------------------------------------------------
Total Distributions (.642) (.597) (.591) (.623) (.463)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.10 $10.00 $ 9.92 $10.07 $ 9.50
===================================================================================================================================
TOTAL RETURN** 7.63% 7.04% 4.55% 12.88% -0.37%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $709 $446 $328 $208 $77
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.18%+
Ratio of Net Investment Income to Average Net Assets 5.68% 6.03% 5.93% 6.28% 5.77%+
Portfolio Turnover Rate 112% 88% 65% 65% 53%
===================================================================================================================================
</TABLE>
*Subscription period for the fund was from January 18, 1994, through February
28, 1994, during which time all assets were held in money market instruments.
**Total return figures do not reflect the annual account maintenance fee of $10.
+Annualized.
50
<PAGE> 53
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------- MAR. 1* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 1995 DEC. 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.20 $ 9.96 $10.37 $ 9.18 $10.00
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .647 .661 .648 .661 .533
Net Realized and Unrealized Gain (Loss) on Investments .353 .240 (.406) 1.217 (.820)
---------------------------------------------------------------
Total from Investment Operations 1.000 .901 .242 1.878 (.287)
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.647) (.661) (.648) (.661) (.533)
Distributions from Realized Capital Gains (.073) -- (.004) (.027) --
---------------------------------------------------------------
Total Distributions (.720) (.661) (.652) (.688) (.533)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.48 $10.20 $ 9.96 $10.37 $ 9.18
================================================================================================================================
TOTAL RETURN** 10.09% 9.41% 2.55% 21.07% -2.88%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,102 $687 $460 $346 $71
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.18%+
Ratio of Net Investment Income to Average Net Assets 6.23% 6.64% 6.54% 6.55% 6.88%+
Portfolio Turnover Rate 77% 56% 80% 71% 63%
================================================================================================================================
</TABLE>
*Subscription period for the fund was from January 18, 1994, through February
28, 1994, during which time all assets were held in money market instruments.
**Total return figures do not reflect the annual account maintenance fee of $10.
+Annualized.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------ MAR. 1* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 1995 DEC. 31, 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.78 $10.08 $10.82 $ 8.96 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .666 .678 .674 .692 .586
Net Realized and Unrealized Gain (Loss) on Investments .588 .700 (.731) 1.884 (1.040)
-------------------------------------------------------------
Total from Investment Operations 1.254 1.378 (.057) 2.576 (.454)
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.666) (.678) (.674) (.692) (.586)
Distributions from Realized Capital Gains (.048) -- (.009) (.024) --
-------------------------------------------------------------
Total Distributions (.714) (.678) (.683) (.716) (.586)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.32 $10.78 $10.08 $10.82 $ 8.96
===============================================================================================================================
TOTAL RETURN** 11.98% 14.30% -0.26% 29.72% -4.53%
===============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $210 $88 $44 $24 $9
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.18%+
Ratio of Net Investment Income to Average Net Assets 6.01% 6.66% 6.75% 6.90% 7.70%+
Portfolio Turnover Rate 57% 58% 46% 45% 70%
===============================================================================================================================
</TABLE>
*Subscription period for the fund was from January 18, 1994, through February
28, 1994, during which time all assets were held in money market instruments.
**Total return figures do not reflect the annual account maintenance fee of $10.
+Annualized.
51
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
Vanguard Bond Index Funds comprise the Total Bond Market Index Fund, Short-Term
Bond Index Fund, Intermediate-Term Bond Index Fund, and Long-Term Bond Index
Fund, each of which is registered under the Investment Company Act of 1940 as a
diversified open-end investment company, or mutual fund. Certain of the funds'
investments are in corporate debt instruments; the issuers' abilities to meet
their obligations may be affected by economic developments in their respective
industries.
A. The following significant accounting policies conform to generally
accepted accounting principles for mutual funds. The funds consistently follow
such policies in preparing their financial statements.
1. SECURITY VALUATION: Bonds, and temporary cash investments acquired
over 60 days to maturity, are valued using the latest bid prices or using
valuations based on a matrix system (which considers such factors as security
prices, yields, maturities, and ratings), both as furnished by independent
pricing services. Other temporary cash investments are valued at amortized cost,
which approximates market value. Securities for which market quotations are not
readily available are valued by methods deemed by the Board of Trustees to
represent fair value.
2. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: Each of the Vanguard Bond Index Funds, along
with other members of The Vanguard Group, transfers uninvested cash balances
into a Pooled Cash Account, which is invested in repurchase agreements secured
by U.S. government securities. Securities pledged as collateral for repurchase
agreements are held by a custodian bank until the agreements mature. Each
agreement requires that the market value of the collateral be sufficient to
cover payments of interest and principal; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
discounts on debt securities purchased are amortized and accreted, respectively,
to interest income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the funds under methods approved by the Board of
Trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At December 31, 1998, the funds had
contributed capital to Vanguard (included in Other Assets) of:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF
TO VANGUARD OF FUND VANGUARD'S
INDEX FUND (000) NET ASSETS CAPITALIZATION
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Bond Market $1,743 0.02% 2.5%
Short-Term Bond 126 0.02 0.2
Intermediate-Term Bond 189 0.02 0.3
Long-Term Bond 35 0.02 --
------------------------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
52
<PAGE> 55
C. The Total Bond Market Index Fund offers two classes of shares, the
Investor Shares and the Institutional Shares. Institutional shares are designed
primarily for institutional investors that meet certain administrative and
servicing criteria and have a minimum investment of $10 million. Investor
shares are offered to all other investors. Both classes of shares have equal
rights as to assets and earnings, except that each class bears certain
class-specific expenses related to its shareholder activity. For the year ended
December 31, 1998, class-specific expenses represented an annual rate of 0.14%
and 0.04% of average net assets of the Investor Shares and Institutional
Shares, respectively. Income, expenses not attributable to a specific class,
and realized and unrealized gains and losses on investments are allocated to
each class of shares based on its relative net assets.
The funds' custodian bank has agreed to reduce its fees when the fund
maintains cash on deposit in the non-interest-bearing custody account. For the
year ended December 31, 1998, custodian fee offset arrangements reduced
expenses for the Total Bond Market Index Fund, Short-Term Bond Index Fund,
Intermediate-Term Bond Index Fund, and Long-Term Bond Index Fund by $18,000,
$2,000, $4,000, and $2,000, respectively.
D. During the year ended December 31, 1998, purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
(000)
----------------------------------------
INDEX FUND PURCHASES SALES
----------------------------------------------------------------------------------
<S> <C> <C>
Total Bond Market $2,189,607 $237,559
Short-Term Bond 195,888 20,745
Intermediate-Term Bond 282,524 66,994
Long-Term Bond 42,988 2,411
----------------------------------------------------------------------------------
</TABLE>
Purchases and sales of U.S. government securities were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
(000)
--------------------------------------
INDEX FUND PURCHASES SALES
----------------------------------------------------------------------------------
<S> <C> <C>
Total Bond Market $6,487,665 $4,380,048
Short-Term Bond 696,759 615,966
Intermediate-Term Bond 796,961 607,062
Long-Term Bond 151,966 79,110
----------------------------------------------------------------------------------
</TABLE>
During the year ended December 31, 1998, the Total Bond Market Index
Fund realized $854,000 of net capital gains resulting from in-kind
redemptions--in which shareholders exchanged fund shares for securities held by
the fund rather than for cash. Because such gains are not taxable to the fund,
and are not distributed to shareholders, they have been reclassified from
accumulated net realized gains to paid in capital.
Capital gains distributions are determined on a tax basis and may differ
from realized capital gains for financial-reporting purposes due to differences
in the timing of realization of gains. At December 31, 1998, the Total Bond
Market Index Fund, Short-Term Bond Index Fund, Intermediate-Term Bond Index
Fund, and Long-Term Bond Index Fund had capital gains of $15,248,000,
$2,651,000, $4,101,000, and $444,000 available for distribution, respectively.
The Total Bond Market Index Fund and Intermediate-Term Bond Index Fund used
capital loss carryforwards of $12,406,000 and $3,553,000, respectively, to
offset taxable gains realized during the year ended December 31, 1998, reducing
the amount of capital gains that would otherwise be available to distribute to
shareholders.
53
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (continued)
E. At December 31, 1998, unrealized appreciation of investment securities
for financial reporting and federal income tax purposes was:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
(000)
---------------------------------------------------------------------
APPRECIATED DEPRECIATED NET UNREALIZED
INDEX FUND SECURITIES SECURITIES APPRECIATION
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Bond Market $320,871 $(12,117) $308,754
Short-Term Bond 7,852 (812) 7,040
Intermediate-Term Bond 37,368 (1,302) 36,066
Long-Term Bond 12,168 (198) 11,970
-----------------------------------------------------------------------------------------------------
</TABLE>
F. The market values of securities on loan to broker/dealers at December
31, 1998, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
(000)
---------------------------------------------------------------------
COLLATERAL RECEIVED
---------------------------------------
MARKET VALUE MARKET VALUE
OF LOANED OF U.S. TREASURY
INDEX FUND SECURITIES CASH SECURITIES
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Bond Market $18,086 $18,678 --
Short-Term Bond 40,708 -- $42,013
Intermediate-Term Bond 433 443 --
-----------------------------------------------------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at
least equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, retention of the
collateral may be subject to legal proceedings. Cash collateral received is
invested in repurchase agreements.
54
<PAGE> 57
REPORT OF INDEPENDENT
ACCOUNTANTS
[PHOTO]
To the Shareholders and Trustees of
Vanguard Bond Index Funds
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Total Bond Market Index Fund, Short-Term Bond Index Fund, Intermediate-Term Bond
Index Fund and Long-Term Bond Index Fund (separate funds of Vanguard Bond Index
Funds, hereafter referred to as the "Funds") at December 31, 1998, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended and the
financial highlights for each of periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 2, 1999
55
<PAGE> 58
SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD BOND INDEX FUNDS
This information for the fiscal year ended December 31, 1998, is included
pursuant to provisions of the Internal Revenue Code.
The Total Bond Market Index Fund, Short-Term Bond Index Fund,
Intermediate-Term Bond Index Fund, and Long-Term Bond Index Fund distributed
$27,099,000, $1,852,000, $5,609,000, and $333,000, respectively, as capital
gains dividends (from net long-term capital gains) to shareholders during
the fiscal year ended December 31, 1998, all of which are designated as 20%
rate gain distributions.
56
<PAGE> 59
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions,
Inc., Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance
Co., and Ladies Professional Golf Association; Trustee Emerita of Wellesley
College.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & JohnsonoMerck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress
& Co., The Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co.,
NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates
<PAGE> 60
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
Q840-02/24/1999
(C) 1999 Vanguard Marketing Corporation, Distributor. All rights reserved.
